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IMF Predicts Positive Outlook for UK amid Broad Inflationary Worry

UTC by Godfrey Benjamin · 3 min read
IMF Predicts Positive Outlook for UK amid Broad Inflationary Worry
Photo: Depositphotos

Per the IMF outlook, resilient demand in the context of declining energy prices can encourage a positive outlook for the UK economy in several ways.

The International Monetary Fund (IMF) said it expects the United Kingdom to avoid a recession and maintain positive growth in 2023. According to a CNBC report, the IMF attributes this positive outlook to resilient demand and declining energy prices, which have encouraged economic growth.

However, the IMF also characterizes the outlook as “subdued”, indicating that while growth is expected, it may not be robust.

In the report, the IMF noted that the economic activity in the UK had fallen sharply with inflation remaining at a “stubbornly high” rate of 10.1% compared to last year. Remarkably, British Finance Minister Jeremy Hunt stated that the task of fighting inflation and improving the UK’s growth prospects is far from done.

He named high energy prices and high inflation as problems facing both the UK and the rest of the world. However, Hunt admitted in an IMF press conference that the government is working towards prioritizing growth for the economy.

Meanwhile, the report follows shortly after the IMF predicted in an earlier review that UK’s growth would contract by 0.3% in 2023, making it the G20’s worst performer. Interestingly, the most recent release appears to indicate an improvement in the UK’s growth forecast.

The new forecast predicts that the UK growth will be 0.4% this year, up 0.7 percentage points from the previous forecast. This points to a more upbeat outlook for the UK economy in the near term. Furthermore, according to the IMF, UK GDP is expected to grow by 1% in 2024.

Looking ahead, the IMF projects growth of around 2% in 2025 and 2026. These projections suggest a gradual improvement in the UK’s economic performance over the medium term.

Interestingly, the IMF report referred to the UK’s continued financial stability as a “global public good” and recommended evidence-based reforms for London to address the post-pandemic rise in labor inactivity, regulatory uncertainty surrounding business investment, and accelerating the country’s green transition.

IMF Outlook and the UK Economy Growth Twist

Per the IMF outlook, resilient demand in the context of declining energy prices can encourage a positive outlook for the UK economy in several ways. When energy prices fall, household disposable income typically increases.

This can lead to increased consumer spending on goods and services, boosting economic activity and stimulating economic growth. Increased consumer spending supports businesses, boosts employment levels and contributes to overall economic growth.

In addition, lower energy prices can also improve the competitiveness of UK exporters. Reduced energy costs can increase the competitiveness of UK goods and services in international markets, potentially leading to increased exports and supporting economic growth.

With the UK Government exploring all avenues to bolster its economy, it will take solace in knowing that its biggest ally is also seeing a major meltdown with debt ceiling conversations permeating the horizon.

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