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UK Economy Set for Modest Recovery in 2025, IMF Forecasts

by
April 17, 2024

New forecasts from the International Monetary Fund (IMF) indicate that the UK economy is poised for a modest recovery next year, driven by declining inflation. However, the growth outlook for this year remains sluggish, with the UK expected to lag behind most G7 economies.

Economic Growth Projections

The IMF’s latest World Economic Outlook downgraded its forecast for UK economic growth to 0.5% for 2024, a slight decrease from previous estimates. Looking ahead to 2025, the IMF expects the UK economy to expand by 1.5%, positioning it as the fastest-growing major economy in Europe.

Factors Influencing Growth

The subdued growth forecast for 2024 reflects the lingering impact of persistent inflation and high interest rates, which hampered economic performance in the previous year. The IMF anticipates that the negative effects of elevated energy prices will gradually diminish, paving the way for improved economic conditions in 2025.

Inflation and Monetary Policy

Inflation in the UK has significantly decreased from its peak of over 11%, prompting expectations that the Bank of England will initiate interest rate cuts later this year to support economic recovery. The IMF forecasts that inflation will average 2.5% in 2024, falling to the target rate of 2% by 2025.

Government Response and Economic Outlook

A Treasury spokesperson expressed optimism about the medium-term growth prospects but acknowledged the short-term challenges posed by higher interest rates. The government remains committed to navigating economic uncertainties and fostering a conducive environment for recovery.

Global Economic Context

The IMF’s global economic outlook underscores the importance of central banks maintaining a delicate balance in managing inflation, advocating for neither premature policy easing nor delayed adjustments that could undershoot inflation targets.

Conclusion

While the UK economy faces near-term challenges, the IMF’s forecasts signal a pathway towards recovery in 2025, driven by easing inflationary pressures and supportive monetary policies. The government remains focused on implementing measures to bolster economic resilience and foster sustainable growth in the coming years.