Breaking IMF upgrades UK growth forecasts and warns Bank of England over ‘delays’ to interest rate cuts – as Jeremy Hunt swipes at ‘unjustified pessimism’ about economy EnglishHeadline

The IMF upgraded forecasts for the UK economic system right this moment as Jeremy Hunt swiped at ‘unjustified pessimism’.

The worldwide physique mentioned Britain is on observe for a ‘tender touchdown’, with GDP predicted to rise 0.7 per cent this 12 months as inflation eases.

That’s up from the 0.5 per cent development it anticipated simply final month. It nonetheless expects a 1.5 per cent enlargement subsequent 12 months.

The Chancellor welcomed the constructive evaluation, saying it proved that the UK has ‘turned a nook’.

Nevertheless, the IMF did rebuke Mr Hunt for trimming nationwide insurance coverage – and warned extra tax cuts will not be a good suggestion forward of the election. 

It mentioned the federal government want to usher in one other £20billion in income by 2029, suggesting scrapping the triple lock on pensions, and mountain climbing levies on motorists, property and inheritance duties.   

The IMF additionally cautioned over ‘delays’ to the Financial institution of England reducing rates of interest, suggesting that the extent must be as much as 0.75 proportion factors decrease by the top of the 12 months. The Financial Coverage Committee’s determination subsequent month seems to be to be on a knife edge.

Jeremy Hunt met the managing director of the IMF, Kristalina Georgieva, at Downing Road right this moment

Official figures for the primary quarter of the 12 months confirmed GDP up 0.6 per cent, described as a ‘gangbusters’ tempo. 

It marked a pointy bounceback from recession within the latter half of 2023.

Progress had stalled within the face of upper borrowing prices, with UK rates of interest elevated to five.25 per cent in a bid to tame rampant inflation.

Headline CPI inflation cooled to three.2 per cent in March – its lowest since September 2021 – and is anticipated to maneuver near the Financial institution of England’s 2 per cent within the newest knowledge tomorrow.

Consequently, economists are predicting that the Financial institution will begin lowering rates of interest by August.

The IMF mentioned: ‘With development recovering quicker than anticipated, the UK economic system is approaching a tender touchdown, following a gentle technical recession in 2023.

‘CPI inflation has fallen quicker than was envisaged final 12 months and is projected to return durably to focus on in early 2025.’

The IMF additionally mentioned ‘tough decisions’ will have to be remodeled the approaching years to ‘stabilise public debt, given important stress on public companies and demanding funding’ forward of an election the place each events are anticipated to deal with the economic system.

The report mentioned the federal government’s main steadiness would have to be 1 per cent of GDP increased by 2029-30 – equal to roughly £23billion extra in right this moment’s phrases.

‘This might be achieved, for instance, by elevating further income from increased carbon and road-usage taxation, broadening the VAT and inheritance tax bases, and reforming capital beneficial properties and property taxation (which might additionally enable a discount in stamp obligation),’ the IMF mentioned, noting it has made related solutions in earlier assessments.

‘On the spending aspect, workers continues to advocate indexing the state pension (solely) to price of dwelling will increase, recognizing the authorities’ efforts to comprise the non-pension welfare invoice by incentivizing work.

‘Different choices might embody expanded use of expenses for public companies, in addition to pursuing productiveness beneficial properties, akin to from the federal government’s introduced funding in digitalization and AI throughout the public sector (together with the NHS), though the financial savings related to these initiatives are tough to quantify at the moment.’

In a harsh message on tax cuts, the IMF mentioned: ‘Towards the backdrop of those challenges, as a normal precept, workers would advise in opposition to further tax cuts, until they’re credibly growth-enhancing and appropriately offset by high-quality deficit-reducing measures.’ 

Mr Hunt mentioned: ‘Right now’s report clearly reveals that impartial worldwide economists agree that the UK economic system has turned a nook and is heading in the right direction for a tender touchdown.

‘The IMF have upgraded our development for this 12 months and forecast we’ll develop quicker than every other giant European nation over the subsequent six years – so it’s time to shake off a few of the unjustified pessimism about our prospects.’

Earlier this month, the OECD downgraded its UK development projections for 2024 and 2025, indicating it is going to witness the weakest development throughout the G7 group of main economies subsequent 12 months.

However that was earlier than the robust figures from the ONS.