IMF says UK no longer heading for a recession in 2023

The International Monetary Fund said on Tuesday that it no longer expects Britain's economy will fall into a recession this year, upgrading forecasts that it published last month, but it also warned that the outlook remains subdued.

The IMF said British gross domestic product was set to grow by 0.4 percent in 2023. In April, it forecast a contraction of 0.3 percent.

The Fund said the improved outlook reflected the unexpected resilience of demand, helped in part by faster than usual pay growth, the fall in soaring energy costs, improved business confidence and the normalization of global supply chains.

 

"Declining energy prices and widening economic slack are expected to substantially reduce inflation to around 5 percent y/y by end-2023, and below the 2 percent target by mid-2025," the IMF said.

The IMF forecast economic growth of 1 percent in 2024 and 2 percent in 2025 and 2026 before settling back to a long-run rate of around 1.5 percent.

Greater persistence in inflation and accompanying unsustainable increases in wages were the biggest threat to Britain's economic outlook, the IMF added.

 

The Bank of England would need to ensure monetary policy remained tight, the IMF said.

"This said, elevated uncertainty about the macroeconomic outlook and inflation persistence merits continuous review of the pace and magnitude of monetary tightening," it added.