UK economy to avoid recession but inflation still a worry, IMF says

LONDON (AP) — The British economy will avoid falling into recession this year, according to upgraded growth forecasts Tuesday from the International Monetary Fund.

In its latest assessment of the United Kingdom economy, the Washington-based fund said domestic demand had proven more resilient than anticipated in the face of the surge in energy costs.

The IMF now thinks the British economy will grow by a still-modest 0.4% this year partly as a result of higher wages, up from its previous prediction just a month ago of a 0.3% decline.

The more positive projection came alongside warnings of a “subdued” outlook for growth and the threat posed by ongoing global uncertainty.

IMF Managing Director Kristalina Georgieva said at a press briefing in London that the latest assessment reflects “favourably” on the UK in comparison to other countries in the Group of Seven leading industrial nations.

“We are likely to see the UK performing better than Germany, for example,” she said.

Despite the more upbeat assessment, the IMF said inflation is likely to remain stubbornly high over the coming years and only return to the Bank of England's target of 2% in mid-2025, six months longer than it predicted earlier this year.

Like other central banks, the Bank of England has been raising interest rates aggressively over the past 18 months or so to a 15-year high of 4.5% after inflation spiked sharply, first because of bottlenecks caused by the coronavirus pandemic and then Russia's invasion of Ukraine, which sent energy and food prices surging.

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