The International Monetary Fund (IMF) is out with its latest outlook on the UK economy, projecting a slowdown in growth for this year.
Key takeaways
UK economy is expected to avoid a recession and maintain positive growth in 2023.
UK inflation remains stubbornly high following the severe terms-of-trade shock due to Russia’s war in Ukraine.
UK monetary policy will need to remain tight in order to keep inflation expectations well-anchored.
Fiscal policy should continue to be aligned with monetary policy in the fight against inflation, while protecting key public services and the vulnerable.
Realizing the UK’s full growth potential will require addressing the post-pandemic rise in labor inactivity, mainly due to long-term illness.
IMF staff forecasts UK GDP growth to slow to 0.4 percent in 2023.
This latest forecast represents a 0.7 percentage point upgrade to the IMF’s April forecast.
Growth is projected to rise gradually to 1 percent in 2024, and to average around 2 percent in 2025 and 2026.
Growth is projected to settle at 1.5 percent, staff estimate of trend growth.
Declining energy prices and widening economic slack expected to substantially reduce inflation to around 5 percent by end-2023.
Expects UK inflation below the BoE’s 2 percent target by mid-2025.
Major near-to medium-term risk is greater-than-anticipated persistence in price- and wage-setting.
Downside risks also include a further tightening in global financial conditions.
Market reaction
Despite the IMF’s positive outlook on the British economy, GBP/USD is extending losses below 1.2400. The pair is losing 0.32% on the day to trade at 1.2395, as of writing.
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