The UK economy is predicted to experience a soft landing, with growth expected to recover in 2024 and strengthen in 2025, according to the IMF. Growth in the first quarter of this year was 0.6%, surpassing expectations and marking a stronger exit from the technical recession in the second half of last year, which resulted in a full-year growth of 0.1%
The IMF has projected a slight increase in real GDP growth to 0.7% for the year, up from the previous forecast of 0.5%. They anticipate further growth to 1.5% in 2025 due to disinflation boosting real incomes and improved financial conditions.
The long-term growth prospects remain subdued due to weak labor productivity and higher inactivity levels from long-term illness, partially offset by increased migration numbers. Disinflation has progressed faster than anticipated, with headline and core CPI-based inflation dropping to 3.2% and 4.2% year on year in March. This decline is attributed to energy and import price deflation, as well as the effects of tight monetary policy.
In the second half of the year, there is expected upward pressure on inflation as the effects of lower energy prices diminish, but a return to the Bank of England’s 2 percent target is predicted by early 2025. Risks to growth and inflation are balanced, with the possibility of lower inflation and higher growth if second-round effects of falling energy prices are stronger. However, both inflation and growth could be lower if domestic demand does not increase as expected and the savings rate remains high. The IMF recommended that the United Kingdom continue its cautious industrial policy and maintain its open trade orientation.
