IMF does a U-turn, predicts economic rebound for UK

The International Monetary Fund (IMF) on Tuesday (May 23) did a major U-turn and said that it expected growth this year for the UK economy. Just a month ago, the IMF had predicted a contraction.

Now, Britain's economy is expected to expand by 0.4 per cent in 2023, said IMF in its latest outlook document. The document cited weaker energy prices.

The institution ripped up its previous forecast in April for a 0.3-per cent contraction.

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IMF director Kristalina Georgieva defended the U-turn in a London press conference.

Georgieva said that the U-turn was sparked by falling energy prices. This eased concerns over Brexit and improved financial stability following recent political turmoil and US banking sector woes.

She praised the UK for its 'decisive and responsible steps' in recent months which included overseeing a rescue deal by British bank HSBC for the British arm of collapsed US lender SVB.

'Highly uncertain' global economy

"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, who were also addressed 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 about a 'highly uncertain' global economy but expressed hope that the US would soon conclude a deal to raise the debt ceiling and avoid a default.

"I look forward to a solution being found... Hopefully, we won't have to wait that long."

'Significant' slowdown

The IMF noted there had still been a "significant" UK slowdown from 2022 when the economy grew 4.1 per cent 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, labour supply scarring from the pandemic."

IMF also cautioned about this year's growth outlook which it said would be '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 organisation added that the Windsor framework will "favourably impact" the outlook.

(With inputs from agencies)

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