The International Monetary Fund expected Britain’s gross domestic product to grow by 0.4% in 2023, after it expected it to contract by 0.3% in its forecast earlier in April, but these expectations are lower than any major economy.
The Fund said the improved outlook was supported by unexpected resilience in demand, in addition to faster-than-usual wage growth, higher government spending and improving consumer confidence. companies.
It has also contributed to improved forecasts, lower energy costs and improved conditions for global supply chains.
“Although the outlook has improved and is trending upwards, with data improving somewhat in recent months, it remains weak,” the IMF said.
“Economic activity has slowed considerably compared to last year, and inflation remains high due to the terms-of-trade impact of the war in Ukraine, in addition to labor shortages. work due to the pandemic,” the Fund added.
On prices, the fund expects UK inflation to fall to around 5% by the end of this year, from over 10% in March, and to return to its target of 2% by mid-2025, and expectations are broadly in line with the Bank of England’s expectations at the start of the month.
The IMF also forecast the economy to grow by 1% in 2024 and 2% in 2025 and 2026, before returning to a long-term growth rate of around 1.5% in subsequent years.
The IMF added that Britain’s growth potential could be boosted by taking steps to tackle the impact of chronic conditions on the workforce and reduce political and legal uncertainty that is hurting investment. companies.
The fund added that the recently amended post-Brexit trade deal with the European Union, which includes Northern Ireland, should encourage investment and business.
However, the International Monetary Fund has pointed out that the persistence of inflation and the unsustainable wage increases that accompany it are the biggest short-term challenges to Britain’s economic outlook, and that the Bank of England must ensure that monetary policy remains tight.
The International Monetary Fund added that “the high level of uncertainty about the macroeconomic outlook and the persistence of inflation warrant continued review of the pace and extent of monetary policy tightening.”
The Bank of England has raised borrowing costs in 12 consecutive meetings, taking the interest rate to 4.5%, and financial markets expect it to peak at 5% later this year .
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