WASHINGTON: The International Monetary Fund on Tuesday raised its forecast for British economic growth this year, offering a small boost to finance minister Rachel Reeves who presents her first annual budget next week.
The IMF said its upgrade was due to lower inflation and a cut in Bank of England interest rates though it did not revise up its outlook for 2025.
The news is likely to be seized on by Conservative opponents of the new Labour Party government who dispute Reeves’ claim that they left Labour a poor economic legacy after their 14 years in power.
“Growth is projected to have accelerated to 1.1% in 2024 and is expected to continue doing so to 1.5% in 2025 as falling inflation and interest rates stimulate domestic demand,” the IMF said in its quarterly global forecast update.
In July, the IMF forecast Britain’s economy would grow 0.7% this year. Britain is now on track to have the joint third-fastest growth in the Group of Seven advanced economies alongside France, after being in joint fourth spot with Japan and Italy in July.
The IMF’s forecast for British economic growth in 2024 is now higher than that of the country’s budget forecasters whose projections underpin government budget plans.
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But the IMF is less optimistic about 2025 than the Office for Budget Responsibility, limiting the upside for Reeves from higher tax revenues.
Reeves welcomed the higher IMF growth forecast for 2024 and said she would press ahead with measures in her budget on Oct. 30 to shore up the public finances.
“That is why the budget next week will be about fixing the foundations to deliver change, so we can protect working people, fix the NHS (National Health Service) and rebuild Britain,” she said in a statement.
Reeves and Prime Minister Keir Starmer have suggested higher taxes on employers and wealthier people are likely to be among the changes announced next week.
Last year Britain’s economy grew just 0.3% and suffered a shallow recession in the second half of the year, but it rebounded relatively strongly in the first six months of 2024.
Inflation this year is forecast to average 2.6% – the second-highest in the G7 after the United States – before averaging 2.1% in 2025, close to the BoE’s 2% target.
Inflation dropped to a three-year low of 1.7% in September and although the BoE forecasts it will pick up slightly, markets expect the central bank to cut borrowing costs again next month, after a first quarter-point rate cut to 5% in August.
Adjusted for population growth, Britain’s economic performance is less impressive. The IMF estimates British GDP per head will rise by 0.6% this year and 1.1% next year – well short of Reeves’ goal to top the G7 rankings on this measure for two consecutive years.
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