IMF raises UK economic growth forecast

Chancellor George Osborne: "We are delivering economic security for the hard working people of this country"

The International Monetary Fund (IMF) has sharply increased its growth forecast for the UK economy.

It now expects the economy to grow 2.4% this year - faster than any other major European economy - against its previous forecast of 1.9%. In 2015, it expects growth of 2.2%.

The Treasury said the new UK forecast was further evidence that the government's economic plan was working.

The IMF also raised its global growth outlook slightly to 3.7%.

"Global growth is expected to increase in 2014 after having been stuck in a low gear in 2013," the IMF said in its report.

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Britain's recovery is real and is the best we've experienced for years”

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The world's largest economy, the US, is expected to grow by 2.8% this year, an improvement on the previous estimate of 2.6% that the IMF made in October.

It expects the euro area as a whole to grow by 1%. "The euro area is turning a corner from recession to recovery," the IMF said. However, it added the pickup would be weaker in economies that have been facing "financial stress", namely Greece, Spain, Cyprus, Italy and Portugal.

The IMF also upgraded its forecast for the Chinese economy to 7.5% this year.

Graph showing IMF growth and forecast for 2014

But it also warned that "strengthening global growth does not mean that the global economy is out of the woods".

It said governments in advanced economies must not withdraw measures to support growth prematurely.

Rising confidence

Analysis

Time to breathe a sigh of relief? That might be a bit premature. Certainly this update from the IMF portrays a global economy that is gradually repairing the damage done by the financial crisis.

It was a non-natural disaster that had its epicentre in the advanced economies and they are returning to growth. If the IMF forecasts are right, the UK, France and Japan could get back to their pre-recession levels of output during the course of next year. That would be all the G7 leading developed economies bar Italy, which is still languishing far behind.

But inevitably there are still risks, and they are consequences of the crisis. The big one is the withdrawal of the stimulus measures taken by central banks. It's a potential particular danger for some emerging economies who could be hit by the financial market turbulence that might result. The IMF's chief economist called this a weak and uneven recovery. But recovery it is nonetheless.

Christine Lagarde, the IMF managing director, has previously expressed concerns about growth levels in the UK economy in light of the government's austerity drive, which is designed to reduce debt levels.

But the IMF upgraded its forecast for the UK in 2014 by more than for any other economy. It also raised its forecast for growth in 2015 to 2.2%.

"[The IMF] report provides further evidence that the government's long term economic plan is working," said a spokesperson for the Treasury.

"But the job is not yet done and so the government will go on taking the difficult decisions necessary to deliver a sustainable recovery for all".

Shadow chancellor Ed Balls said: "After three damaging years of flatlining, any growth is both welcome and long overdue.

"With business investment still weak and the IMF forecasting that UK growth will slow down again next year, it's clear that this is not yet a recovery that is built to last."

The IMF forecast is now in line with that of the UK's Office for Budget Responsibility's estimates for 2014.

On Monday, the EY Item Club of economists said it expected the UK economy to grow by 2.7% this year.

Confidence in the UK economy has increased markedly in recent weeks, with unemployment falling, the manufacturing sector and retail sales recording strong growth, and inflation back at the government's 2% target rate.

Further evidence of the recovery came on Tuesday with publication of the CBI business group's Industrial Trends Survey. This found that growth in new manufacturing orders was at its strongest since April 2011.

"The recovery in the manufacturing sector is continuing to build and confidence has improved," said Stephen Gifford, the CBI's director of economics.

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