The International Monetary Fund (IMF) came under pressure last week to revise its gloomy forecasts for Britain. Figures showed the economy rose back to growth at the start of the year and that was enough to persuade the IMF to amend its data.
UK business has enjoyed its strongest growth for nearly a year – outpacing global rivals – in the latest sign that the recession has been left behind. A closely watched survey compiled by data provider S&P Global showed private activity gathering pace this month with the healthiest expansion since last May.
S&P’s latest purchasing managers’ index survey suggested the bounce-back extended into April. It gave a reading of 54, up from 53.8 in March. A reading above 50 signals growth and below 50 points to contraction. The figure put the UK ahead of the US and the eurozone. In Germany and France, the private sector is experiencing little or no growth.
UK economist at Capital Economics, Ashley Webb, said the report suggests “the economic recovery is well under way.” It came as separate figures from lender Nationwide showed households were starting to splash out more on gardening, eating out and holidays as cost-of-living pressures ease. And in the financial district of London (known as the ‘City’) the FTSE 100 provided further cheer as it hit a new record high.
Officials from the IMF have been in Britain this month compiling their latest regular health check of the economy and have presented their findings. The IMF’s latest forecast last month suggested that UK gross domestic product (GDP) would grow by just 0.5 per cent this year.
Yet the most recent official figures show Britain grew by 0.6 per cent in the first quarter alone – bouncing back after a dismal end to 2023 when it slid into recession. IMF staff have this month been meeting officials from the Treasury and the Bank of England as well as other experts, including the Institute for Fiscal Studies, a leading think-tank.
Its conclusions being revealed by managing director Kristalina Georgieva at a press conference alongside Chancellor Jeremy Hunt. The mood between them may have proved frosty after the IMF recently warned that Hunt’s cuts to national insurance could push up debt. The IMF has previously said the Government should be spending more money on the NHS and the transition to net zero instead.
But an upgrade for the UK is likely to be cheered by the Chancellor as the latest evidence boosted by the steep fall in inflation, which at the start of last year was running in double figures. Last week’s data showed it at 2.3 per cent, plunging close to its two per cent target for the first time in nearly three years.
That should mean interest rate cuts are coming this summer. The Bank of England has said a cut could come as soon as next month, providing relief for borrowers. The upbeat signs for the economy have already prompted a number of forecasters to bump up their economic outlooks.
Deutsche Bank, Pantheon Macroeconomics and Capital Economics all expect UK GDP to grow by 0.8 per cent this year. Panmure Gordon’s chief economist Simon French, who had an upbeat view on the UK even before the first quarter data, said he feels ‘more confident that I am the right side of the argument now’. He expects growth of 1.2 per cent this year.
Sam Miley, managing economist at the Centre for Economics and Business Research (CEBR), said: “We think the IMF’s forecast is a pessimistic one.” The CEBR predicts growth of one per cent as consumer spending is buoyed by falling inflation and buoyant wages. Miley added that other challenges facing the economy “are also expected to subside this year” including cuts to interest rates within the next few months. (The writer is our foreign correspondent based in the UK)
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