LONDON: The IMF on Tuesday delivered a major U-turn on its forecast for the UK economy, saying it expected growth this year, just one month after predicting a contraction. Britain’s economy is now expected to expand by 0.4 percent in 2023, the International Monetary Fund said in its latest outlook document which partly cited weaker energy prices. The institution ripped up its previous forecast in April for a 0.3-percent contraction.

Addressing a London press conference, IMF managing director Kristalina Georgieva defended the U-turn. She said it had been sparked by falling energy prices, easing concerns over Brexit and improving financial stability following recent UK political turmoil and US banking-sector woes. She praised Britain for taking “decisive and responsible steps” in recent months, including overseeing a rescue deal by British bank HSBC for the British arm of collapsed US lender SVB.

“We have gone through a very turbulent time over the last few years. We have experienced shock upon shock upon shock, and that has created exceptional uncertainty,” the IMF head told reporters, addressed also by UK finance minister Jeremy Hunt. “Our staff deserve credit for being agile in how we look at changing conditions... so we can give as clear a picture as we can, at a time when it is the foggiest we have seen in many decades,” she said.

Georgieva warned that the “global economy remains highly uncertain”. But she expressed hope that US politicians would soon conclude a deal to raise the nation’s debt ceiling and avoid a default. “I look forward to a solution being found... Hopefully we won’t have to wait that long.”

The IMF noted there had still been a “significant” UK slowdown from 2022, when the economy grew 4.1 percent despite sky-high inflation and energy bills owing to the Ukraine war. “Buoyed by resilient demand in the context of declining energy prices, the UK economy is expected to avoid a recession and maintain positive growth in 2023,” read the IMF statement. 

“Still, economic activity has slowed significantly from last year and inflation remains stubbornly high following the severe terms-of-trade shock due to Russia’s war in Ukraine and, to some extent, labor supply scarring from the pandemic.”

It also cautioned that this year’s growth outlook remains “subdued”. The IMF said the 2023 upgrade reflected “higher-than-expected resilience” in both demand and supply, alongside improved confidence in reduced post-Brexit uncertainty as well as lower energy costs.

The organization added that the Windsor framework will “favorably impact” the outlook. Conservative Prime Minister Rishi Sunak sealed the Windsor pact this year to overhaul Northern Irish trade rules and to reset post-Brexit relations between London and the European Union.


‘Strong growth prospects’

Hunt told the press conference that the “big upgrade” from the IMF credits the government’s “action to restore stability and tame inflation”. “If we stick to the plan, the IMF confirm our long-term growth prospects are stronger than in Germany, France and Italy... but the job is not done yet.”

Tuesday’s update could boost Sunak’s governing Conservatives, who lag the main opposition Labour party ahead of a general election widely expected next year. British GDP is expected to grow by 1.0 percent in 2024, unchanged from the IMF’s prior guidance. The news comes after the Bank of England earlier this month forecast that the UK economy would avoid recession this year despite the country’s annual inflation stuck above 10 percent. Britain is due to publish its official April inflation data on Wednesday. — AFP