The International Monetary Fund (IMF) raised its growth forecast for the U.K. in 2024 to 0.7% from 0.5%, providing a significant boost to the country’s newly established government.
Looking forward, the IMF maintained its prediction of 1.5% growth for the U.K. in 2025 in its July update of the World Economic Outlook.
This positive revision follows two years of stagnation, during which the U.K. entered a mild recession in the latter half of 2023. Despite this, May saw GDP growth surpassing analyst expectations at 0.4%, with events like the Euro 2024 soccer championship and Taylor Swift’s Eras Tour expected to further stimulate economic activity.
Meanwhile, Goldman Sachs adjusted its 2025 forecast for the U.K. upward by 0.1 percentage point to 1.6%, attributing this change to the fiscal strategies of the new Labour government, led by Prime Minister Keir Starmer, which include planning reforms and strengthened trade relations with the European Union.
Deutsche Bank also revised its U.K. outlook, raising its GDP growth expectations to 1.2% for this year, significantly higher than their previous 0.8% forecast. Noting the robust performance of sectors such as professional services and construction in May, the bank anticipates a further economic boost from the Euros tournament, particularly in hospitality and leisure sectors.
Analysts at Jefferies highlighted that the U.K.’s political stability, coupled with regulatory modifications, could enhance the country’s asset attractiveness.
As the Bank of England prepares to decrease interest rates in the near future, U.K. inflation hit the central bank’s 2% target in May. Economists surveyed by Reuters project a drop to 1.9% in the upcoming data release on Wednesday.
Additionally, the IMF raises growth forecasts for other economies, including the euro zone by 0.1 percentage point to 0.9%, Spain by 0.5 percentage point to 2.4%, and China by 0.4 percentage point to 5%. However, it lowered its projection for the U.S. economy by 0.1 percentage point to 2.6%.
The IMF noted global growth at 3.2% for this year, attributing the strength in global activity and trade to robust exports from Asia.
Despite these positive trends, the IMF cautioned that the services sector was hindering the disinflation process, complicating monetary policy decisions. It also highlighted rising inflation risks, potentially leading to extended periods of higher interest rates amidst escalating trade tensions and heightened policy uncertainty.
