IMF raises growth forecast to 2.4%

Wednesday 22 January 2014

The International Monetary Fund (IMF) has lifted its growth forecast for the UK this year to 2.4% in a fresh boost for Chancellor George Osborne.

Its latest prediction, a sharp upgrade from a previous figure of 1.9%, would see Britain among the fastest-growing of the world's advanced economies. The World Economic Outlook puts the UK's pace of expansion ahead of European rivals including Germany and France, though behind the US on 2.8%.

It forecasts that growth for 2013 will have come in at 1.7% and that after recording 2.4% this year, it will slow to 2.2% in 2015.

The figures are in line with the latest forecasts from Britain's independent Office for Budget for Responsibility (OBR), published at the time of Mr Osborne's Autumn Statement last month.

The IMF report said: "Activity in the United Kingdom has been buoyed by easier credit conditions and increased confidence."

But the report said "economic slack" - spare capacity left in the economy which can be measured by factors such as unemployment - would remain high.

The report's reference to credit comes after households' access to finance was boosted by initiatives such as the Funding for Lending scheme and Help to Buy. But conditions for small business borrowing, seen as key to economic health, have not kept pace.

Britain's recovery so far has been fuelled by consumer spending and experts say a rise in real-term wages - which remain subdued - together with an improvement in exports and business investment is needed to sustain an upturn.

The IMF forecasts that the world economy will grow by 3.7% in 2014, up from 3.6% in its last forecast, though risks remain.

Advanced economies remained well off their peak, the fund said, advising that policies such as low interest rates and quantitative easing through pouring money into the economy - as in the UK and the US - should continue amid ongoing spending cuts.

"Given the risks, the monetary policy stance should stay accommodative while fiscal consolidation continues," the report said.

It added that the eurozone was "turning the corner from recession to recovery" but this would be uneven.

A Treasury spokesman said: "Today's report provides further evidence that the Government's long-term economic plan is working, with the IMF upgrading their 2014 forecast for the UK by more than any other G7 economy.

"But the job is not yet done and so the Government will go on taking the difficult decisions necessary to deliver a sustainable recovery for all."

The IMF's previous prediction of 1.9% growth for 2014 last October was an upgrade from an earlier figure of 1.5%.

It underscores how quickly optimism about the UK economy has increased, just nine months after the body urged the Government to rethink its austerity strategy, with the fund's chief economist telling Mr Osborne he was "playing with fire".

Data from the Office for National Statistics (ONS) next week will round off the picture of GDP growth in 2013, after it increased by 0.5% in the first quarter before accelerating to 0.8% in the second and another 0.8% in the third quarter.

There are hopes that the strong pace will have been maintained when the ONS publishes data for the final period of 2013.

Prime Minister David Cameron tweeted: "An encouraging sign of more jobs and security for hardworking people: the IMF confirms upgrading our growth forecast."

Shadow chancellor Ed Balls said: "After three damaging years of flatlining, any growth is both welcome and long overdue.

"But this is the slowest recovery for 100 years and working people are facing a cost-of-living crisis with real wages now down £1,600 a year under David Cameron.

"With business investment still weak and the IMF forecasting that UK growth will slow down again next year, it's clear that this is not yet a recovery that is built to last."