Fund Upgrades Growth and Warns on Inflation
The International Monetary Fund has raised its forecast for British growth this year to 1.3%, from the 1% it expected in July, making the United Kingdom joint second-fastest in the G7. It also expects inflation to average 3.3% this year and 2.8% next, above target, and cut its 2027 growth forecast to 1.2%.
The upgrade is less generous than it first reads, because the good news and the bad arrive in the same document. Growth next year is revised down, not merely slower, and the fund says it will “edge down” as “higher energy prices and long-term interest rates weigh on consumption and investment”. Britain is singled out, with Japan, as a country where core inflation will not return to 2% until late 2027; the Bank of England is gloomier still, expecting inflation above 4% early next year. One rate-setter, Megan Greene, argued in Bangkok that the upgrade is itself an argument for higher rates. What is unexpectedly warm is the verdict on the public finances: the fund’s economic counsellor Silvana Tenreyro said Britain “stands out” in the G7 for having begun consolidation, and that “the message for the UK is simply, stay the course”. It also advises against across-the-board subsidies, wanting support “temporary, targeted and non-distortionary” — awkward counsel for a chancellor under pressure to soften January’s energy bills. The Budget is on 28 October.