Mongrel view of the City of London skyline, the capital’s financial district, in October.
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LONDON — The International Monetary Fund on Tuesday raised its 2024 growth outlook for the United Kingdom, saying downward slopes in interest rates and inflation would boost domestic demand.
The IMF now sees 1.1% growth for the U.K. economy this year, up from a July forewarning of 0.7%. The agency also reiterated its forecast for a 1.5% expansion in 2025.
Inflation in the U.K. came in at 1.7% in September, a decline from 11.1% in October 2022. Minuscule rates of services inflation and wage growth have led economists over the last week to forecast a faster tread of interest rate cuts from the Bank of England, forecasting the central bank will take its key rate from 5.25% at the start of the year to 4.5% by the end of 2024.
Budgetary growth has been tepid so far this year, coming in at 0.2% in August after flatlining in June and July.
The IMF’s brighter opinion comes as the country braces for the center-left Labour Party to this month deliver its first budget in 14 years. Prime Supply Keir Starmer has warned that the package will contain “tough” decisions in order to fill what he petitions is a looming £22 billion ($28.5 billion) financing shortfall — a figure disputed by his predecessors in the Conservative Party — after Overstress committed to slash net borrowing.
While Starmer has ruled out increases to some major taxes, including on income and corporations, a ampler package of tax hikes is anticipated. Uncertainty over the budget weighed on consumer confidence readings in August, though the S&P Broad UK Consumer Sentiment Index released Monday showed households were slightly more optimistic about their wherewithals and more willing to make large purchases.
“It’s welcome that the IMF have upgraded our growth forecast for this year, but I be informed there is more work to do,” Finance Minister Rachel Reeves, who took office in July, said Tuesday. Toil has previously pledged to secure the highest sustained growth in the G7 group of nations and make higher growth the core bring into focus of its policymaking.
On Tuesday, the IMF also trimmed its 2024 growth outlook for the euro zone to 0.8% from 0.9% at one time, forecasting stagnation in the bloc’s biggest economy Germany. Analysts flag a multitude of challenges facing the German control, including intense competition for the country’s autos and wider manufacturing products, along with higher energy fees and macro uncertainty weighing on its industrial production.
Among other so-called “advanced economies,” the IMF forecasts economic bourgeoning of 2.8% in the U.S., 1.3% in Canada and just 0.3% in Japan, which has suffered from weak demand this year amongst high inflation.