IMF Raises UK 2024 Growth Forecast Ahead of Budget Announcement

The International Monetary Fund (IMF) has revised its 2024 growth forecast for the United Kingdom, citing low inflation and the recent interest rate cut by the Bank of England. This updated forecast is viewed as potential support for Chancellor Rachel Reeves as she prepares to present her first annual budget on October 30.

According to the IMF’s quarterly global forecast update, the UK's gross domestic product (GDP) is expected to grow by 1.1% in 2024. This is an improvement over the 0.7% growth predicted in July. However, the IMF has not altered its growth outlook for 2025, which could limit potential increases in tax revenues for Reeves.

Reeves, a member of the Labour Party, welcomed the IMF's improved forecast for 2024. She emphasized her commitment to implementing budget measures aimed at strengthening public finances, supporting working individuals, the National Health Service (NHS), and the country's economic infrastructure.

The IMF's projection places the UK alongside France as the third fastest-growing country among the Group of Seven (G7) advanced economies. This marks an improvement from July when the UK shared the fourth spot with Japan and Italy.

Despite the positive outlook for 2024, the IMF's forecast for the UK's economic growth is less optimistic than that of the Office for Budget Responsibility for 2025. The IMF expects inflation to average 2.6% in 2024, the second highest in the G7 after the US. By 2025, inflation is anticipated to average 2.1%, close to the Bank of England's target of 2%.

The UK economy experienced modest growth of 0.3% last year and entered a shallow recession in the second half of the year. However, it showed relatively strong recovery in the first half of 2024. Following a quarter-point reduction in interest rates to 5% in August, markets anticipate that the Bank of England may further reduce borrowing costs next month, as inflation fell to a three-year low of 1.7% in September.

Adjusting for population growth, the UK's economic performance is less robust. The IMF forecasts that GDP per capita will increase by 0.6% this year and 1.1% next year, falling short of Reeves' ambition for the UK to lead the G7 on this metric for two consecutive years.