The UK economy is approaching a soft landing, with growth recovering faster than expected, following a mild technical recession in 2023, the International Monetary Fund (IMF) said.
Growth was 0.6 percent on a quarter-to-quarter basis in the first quarter of 2024, marking a stronger-than-expected exit from the technical recession in the second half of 2023, which left full-year growth at 0.1 percent, IMF said after an official staff visit to the UK, ANI reported.
Real GDP growth is now forecast at 0.7 percent in 2024, a slight upgrade from 0.5 percent in April, before rising to 1.5 percent in 2025.
The UK economy fell into a technical recession in the second half of 2023.
A technical recession is often defined as two consecutive quarters of negative growth in the real GDP.
The fall in GDP in the fourth quarter, at 0.3 percent, was the biggest since the first three months of 2021 when Britain imposed new Covid-19 restrictions.
“Consumer inflation has fallen faster than was envisaged last year and is projected to return durably to target in early 2025,” IMF said after the official staff visit to the UK.
Headline and core inflation stood at 3.2 percent and 4.2 percent year-on-year, respectively, in March, having declined rapidly due to stronger energy and imported goods price deflation, and the impact of restrictive monetary policy.
IMF forecasts inflation trends
The latest projections from the IMF come at a time when the UK is going to the polls this July.
The IMF said some upward pressure on inflation is expected in the second half of the year as base effects from lower energy prices wane, but a durable return to the Bank of England’s (BoE’s) 2 percent target is forecast by early 2025.
“The banking system in the UK remains healthy, but continued vigilance of all banks is warranted,” IMF noted.
It also suggested structural reforms to boost economic potential and living standards are urgently needed, with a focus on easing planning restrictions, addressing skills shortages, and improving health outcomes.
On what is the next phase of monetary policy, IMF Managing Director Kristalina Georgieva said the next phase is to ease.
“When and by how much will be decided by the Monetary Policy Committee’s data-dependent, meeting-by-meeting approach. We think that rate cuts in the order of 50 to 75 basis points in 2024 would be appropriate,” Georgieva said.
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