The International Monetary Fund has upgraded its forecasts for UK growth, saying the country will no longer fall into recession this year, but warned the government not to cut taxes as that would fuel inflation and result in high interest rates for longer.<\/p>\n\n\n\n
In a message to the chancellor, Jeremy Hunt, that he should maintain his planned squeeze on public spending, the Washington-based body said tax policy should stay \u201caligned with monetary policy in the fight against inflation\u201d.<\/p>\n\n\n\n
Any financial surpluses should be used to pay down government debt to \u201crebuild fiscal buffers\u201d, it said in its annual Article IV review of the UK\u2019s economic outlook released on Tuesday.<\/p>\n\n\n\n
In a more upbeat assessment of the UK\u2019s growth this year, the IMF forecast the country\u2019s gross domestic product would grow by 0.4% this year, tearing up its estimate in April of a 0.3% contraction.<\/p>\n\n\n\n
The economy is still expected to grow at the same modest pace of 1% in 2024, before rising to 2% in 2025 and 2026.<\/p>\n\n\n\n
IMF officials upgraded the UK forecast in response to the greater \u201cresilience\u201d of UK households and businesses during the worst of the inflation shock last year. They noted that company bankruptcies had begin to increase, but said the overall picture was of an economy making a steady recovery.<\/p>\n\n\n\n
Inflation is expected to fall back to 5% by the end of the year and below 2% by the summer of 2024, mainly in response to falling energy prices, the report said.<\/p>\n\n\n\n
However, it said the Bank of England should focus on the potential for wages growth to remain high and the rising price of business services. The central bank should wait for these elements to fall before considering loosening its monetary policy.<\/p>\n\n\n\n
The report said an examination of historical inflation shocks \u201cindicates that high inflation is often persistent\u201d, especially in the aftermath of large import price rises.<\/p>\n\n\n\n
Restating its tough stance on inflation as the main economic enemy, the IMF said there was a \u201chigh prevalence of \u2018premature celebrations,\u2019 characterised by a decline in inflation as the initial shock dissipates, only to re-emerge or plateau at an elevated rate\u201d.<\/p>\n\n\n\n
Hunt welcomed the findings, tweeting: \u201cToday\u2019s IMF report shows a big upgrade to the UK\u2019s growth forecast and credits our action to restore stability and tame inflation.\u201d<\/p>\n\n\n\n
The chancellor, who agreed the wording of the report, is likely to use its analysis to quell demands for tax cuts within Conservative ranks. Several former ministers and backbench Tory MPs believe he should use any financial headroom in the run-up to the next general election to reduce personal and business rates.<\/p>\n\n\n\n
The report said: \u201cFiscal policy should stay the course by adhering to the announced consolidation path. In the near term, saving any revenue overperformance \u2026 would avoid complicating the task for monetary policy, and would also help rebuild fiscal buffers that have been eroded by a succession of adverse shocks.\u201d<\/p>\n\n\n\n
IMF officials took a swipe at the past year\u2019s government leadership changes, saying that business investment had been low due to \u201cpolicy and regulatory uncertainty\u201d.<\/p>\n\n\n\n
It said Hunt had successfully re-established credibility \u201cfollowing the September \u2018mini-budget\u2019 stress episode\u201d but he should consider giving the independent forecaster the Office for Budget Responsibility a bigger role when judging the impact of government budgets.<\/p>\n\n\n\n
Official figures released on Tuesday morning showed that the UK borrowed more than \u00a325bn to balance the books last month, the second-highest borrowing figure for an April, and higher than expected.<\/p>\n\n\n\n
The rise was again driven by soaring inflation and the cost of capping energy bills for homes and businesses, the Office for National Statistics data showed.<\/p>\n\n\n\n
Separate data showed growth across UK companies slowing this month, while firms continue to increase prices. British economic growth remained centred on the service sector in May, according to the latest survey of purchasing managers by the data provider S&P Global and the Chartered Institute of Procurement and Supply. But production levels at manufacturing firms fell at the fastest pace in four months.<\/p>\n\n\n\n
This pulled the index\u2019s figure for May down to 53.9, from a 12-month high of 54.9 in April. Any reading over 50 shows growth.<\/p>\n","protected":false},"excerpt":{"rendered":"
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