IMF Raises UK Growth Forecast, Warns of Debt as Finance Minister Readies Budget

  • The International Monetary Fund on Tuesday raised its forecast for British economic growth this year but said the country could not take its eye off rising public debt, as finance minister Rachel Reeves prepares her first annual budget.
  • The IMF said it expected 2024 growth of 1.1% this year, up from its previous forecast of 0.7%, due to lower inflation and a cut in Bank of England interest rates. It did not raise its outlook for 2025. IMF chief economist Pierre-Olivier Gourinchas also warned that Britain, like many other rich nations, required robust plans to stop the rise in public debt.
  • Britain's government currently has a rule that budgets must ensure public debt falls between the fourth and fifth year of official forecasts from its budget watchdog. Reeves is considering changing the definition of debt used in her Oct. 30 budget to allow more borrowing for long-term investment.
  • Last month the Organisation for Economic Co-operation and Development said Britain's debt rule had curtailed public investment without successfully containing debt. Britain's was the largest IMF forecast upgrade of any of the Group of Seven economies, and the country is now on track to have the joint third-fastest growth in the G7 alongside France.
  • The news was seized on by the Conservative opposition to the new Labour Party government, who dispute Reeves' claim that they left a poor economic legacy after 14 years in power. "Today's data from the IMF confirm the economic inheritance from the last Conservative government was strong," former finance minister Jeremy Hunt said.
  • The IMF's 2024 forecast is now higher than the Office for Budget Responsibility's (OBR’s) projections which underpin government budget plans. However, the Fund is less optimistic about 2025 than the OBR, limiting the potential upside for Reeves, who said she would press ahead with shoring up the public finances.
  • Reeves and Prime Minister Keir Starmer have suggested higher taxes on employers and wealthier people are likely in the budget. Last year Britain's economy grew 0.3% and suffered a shallow recession in the second half of the year, but it rebounded relatively strongly in the first six months of 2024.

(Source: Reuters)