The UK economy is set to grow faster than previously thought in 2024 as drops in inflation and interest rates help drive spending, according to new projections by the International Monetary Fund (IMF).
The organisation’s top economist also cautioned that the UK and other countries must tread a “narrow path” in efforts to reduce debt ahead of next week’s Budget, amid speculation the Chancellor could make changes to UK fiscal rules.
It came as the financial agency held its forecasts for the global economy broadly steady and declared that the battle against inflation has “largely been won”.
However, it said uncertainty around the economic outlook is “high”, partly because of a raft of recent or forthcoming elections.
The IMF warned in its latest World Economic Outlook report that newly elected governments “could introduce significant shifts in trade and fiscal policy”, which could alter future growth in some regions.
It also warned over recent volatility in the financial markets during the summer, with Japanese markets witnessing their worst day of trading for decades in August before staging a recovery.
Recent volatility “has heightened anxiety over the appropriate monetary policy stance – especially in countries where inflation is persistent and signs of slowdown are emerging,” the report said.
The IMF maintained its projection that the world economy will grow by 3.2% in 2024 in its latest update.
It predicted that the economy will also grow by 3.2% next year, in a slight reduction from its previous estimate of 3.3%.
The organisation meanwhile said UK gross domestic product (GDP) is due to grow by 1.1% in 2024.
It represents a significant upgrade after predicting 0.7% growth in July.
The UK economy is then expected to grow by 1.5% in 2025, with the IMF maintaining its prediction from earlier in the year.
It’s welcome that the IMF have upgraded our growth forecast for this year, but I know there is more work to do
Chancellor Rachel Reeves said: “It’s welcome that the IMF have upgraded our growth forecast for this year, but I know there is more work to do.
“That is why the Budget next week will be about fixing the foundations to deliver change so we can protect working people, fix the NHS and rebuild Britain.”
The upgrade provides a notable boost for the Government ahead of its autumn Budget on Wednesday October 30.
However, chief economist of the IMF Pierre-Olivier Gourinchas said countries should tread a “narrow path in terms of fiscal consolidation”, after being asked about reports the Chancellor is considering changes to fiscal rules which could allow the state to borrow more.
He added that countries should not do “too much too quickly” in relation to tax and spending decisions in order to maintain stability.
Mr Gourinchas added: “There is a need to bring debt levels down, stabilise them when they are not stabilised, and rebuild fiscal buffers.”
The IMF report also found that UK inflation for 2024 is set to be slightly higher than expected at 2.6%, having previously pointed towards a 2.5% reading.
It likewise slightly increased its inflation projection for 2025 to 2.1% from 2% in its previous outlook.
Unemployment is also set to be slightly worse than previously expected by the IMF, according to the latest report.
It said the UK unemployment rate is set to have been 4.3% for 2024 as a whole, compared with a previous 4.2% estimate.
