IMF: UK economic growth to reach 2.9% in 2014

 

Olivier Blanchard from the IMF said it was clear that their forecasts had been "too pessimistic"

Related Stories

The International Monetary Fund (IMF) says the UK economy will be the fastest-growing in the G7 this year.

It says the UK will grow 2.9% in 2014, up from a January estimate of 2.4%, and will see growth of 2.5% in 2015.

Overall, the IMF says the global economy strengthened at the end of 2013. It forecasts global growth of 3.6% this year and 3.9% in 2015.

But it sees risks in emerging markets and warns of low inflation in advanced economies and geopolitical issues.

Analysis

This is a relatively upbeat forecast for the world and for the UK in particular.

For the UK, it is yet another substantial upgrade to the IMF's assessment of the outlook. Only 12 months ago, the IMF forecast 1.5% growth for this year.

If the new figure of 2.9% turns out to be right, the UK will be the fastest-growing economy in the G7 major developed nations this year.

The global forecast also sees things getting better. Next year's figure would be just about the same as the average for the 10 years before the financial crisis.

Inevitably there are risks, however, including possible economic fallout from the political crisis in Ukraine.

The IMF also warns about the potential for excessively low inflation - yes, really.

Falling prices or deflation can be very damaging. So far, it is not affecting very many countries. But it is a potentially threatening cloud on the economic horizon.

The predictions come in the IMF's latest World Economic Outlook, its bi-annual analysis and projections of economic developments.

Global economy

The IMF said the US had seen stronger economic growth as Washington's debt and deficit cleared and predicted the country's economy would grow by 2.8% in 2014 and 3% next year.

But it scaled back its January growth forecast for emerging and developing nations, including India and Brazil, by 0.2 percentage points.

The IMF said the economies were hit as investors were more sensitive to policy weakness, with monetary policy being normalised in some advanced economies.

China's economic growth would be 7.5% for 2014 and 7.3% next year, it said, as it expected authorities in China to rein in their "rapid credit growth".

The IMF said India, South Korea and Indonesia should benefit from an improved export environment, but noted Thailand's prospects would be hit by political instability.

Russia's growth forecast was cut by 0.6 percentage points to 1.3% for the rest of 2014, because of "emerging market financial turbulence and geopolitical tensions relating to Ukraine... on the back of already weak activity", the IMF said.

Meanwhile, it said recovery of Europe's emerging economies would slow in 2014 and would also be hampered by any escalation of the situation in Ukraine.

Emerging Europe's forecast was revised down by 0.35 points to 2.4%.

Last week, the IMF's head warned that the global economy could be heading for years of "sub-par growth".

Christine Lagarde warned that without "brave action", the world could fall into a "low growth trap".

IMF economic growth forecast, in % per country for 2014 and 2015

  • China 7.5, 7.3
  • Russia 1.3, 2.3
  • India, 5.4, 6.4
  • UK 2.9, 2.5
  • US 2.8, 3.0
  • Euro area 1.2, 1.5
  • Emerging markets 4.9, 5.3

She said the global economy would grow by more than 3% this year and next, but that market volatility and tensions in Ukraine posed risks.

Ms Lagarde also urged more action to tackle low inflation in the eurozone.

Exports disappoint

The IMF says that growth has rebounded more strongly than anticipated in the UK on the back of easier credit conditions and increased confidence.

But it cautions that the recovery has been unbalanced, with business investment and exports still disappointing.

For instance, an external shock involving further growth disappointment in emerging market economies could spill over to the euro area, it says.

That, in turn, could spread to the UK through "financial linkages".

"In the United Kingdom, monetary policy should stay accommodative, and recent modifications by the Bank of England to the forward-guidance framework are therefore welcome," the report added.

"Similarly, the government's efforts to raise capital spending while staying within the medium-term fiscal envelope should help bolster recovery and long-term growth."

Danny Alexander said moving away from austerity measures would be "the worst thing possible to do"

In January, the IMF said it was increasing its UK growth forecast for 2014, from a previous 1.9%, to 2.4%. That figure has now been raised again.

Responding to the 2.9% growth prediction, Chancellor George Osborne hailed it as "proof that the economic plan is working" and criticised "growth deniers in the Labour Party" who he said were "intent on talking down the British economy".

For his part, shadow chancellor Ed Balls said the IMF was "right to warn about an unbalanced recovery" and accused the government of "complacently trying to claim that everything is going well".

On Tuesday, the National Institute of Economic and Social Research (NIESR) said that UK growth in the first part of 2014 had been "robust", and estimated that UK output grew by 0.9% in the three months ending in March.

Nevertheless, NIESR said that the UK economic recovery was "in its infancy" and that it did not expect the Bank of England to raise interest rates until the middle of 2015.

Food and drinks

Earlier on Tuesday, there was further indication of UK growth, with the release of manufacturing and industrial production figures.

UK manufacturing output grew by 1% in February from January, the Office for National Statistics (ONS) has said.

The rise - driven by pharmaceuticals, transport equipment, food, beverages and tobacco - was the biggest since September, and ahead of forecasts.

The year-on-year figure saw output 3.8% higher than in the same month of 2013.

Industrial output, which includes power generation and North Sea oil production as well as manufacturing, climbed 0.9% on the month.

 

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +77

    Comment number 107.

    The important part is growth in manufacturing.

    If that is genuine growth then its a step towards rebalancing our one sided economy.

  • rate this
    +51

    Comment number 75.

    Economies are like tides - they ebb and flow. All politicians can hope to do is fiddle at the edges, they can do that either badly or positively. I have banged on about infrastructure investment on here for years and finally we seem to be getting there. We don't want credit cards being maxed out or sky-high mortgages. We need better roads, railways and airports along with fast broadband for all.

  • rate this
    +69

    Comment number 71.

    The IMF is independent of governments, so this isn't spin put out by any party.

    With growth comes confidence from investors in this country and abroad. Confidence in the UK (as shown by Hitachi moving their rail division to the North East) is what's needed to get more people back into work: growth breeds growth.

    This is good news. Just deal with it.

  • rate this
    +1

    Comment number 58.

    The growth deniers and the wrong sort of growth preachers sound bad losers.
    This growth is both national and broad based. Given that the EU is stagnant and deflating, the pound is rising in value and both the depth of the recession combined with the degree of exposure to financial services meant that we were more exposed than most; we still lead the G7 by a street.
    Owing £1.4 trillion its welcome

  • rate this
    +48

    Comment number 54.

    Growth is only good if it is genuine expansion of production. Growth that is only a housing bubble along with other forms of debt expansion is just fodder for the next crash. That is what we have now and the way we organise our money creation allows alternative. 97% of the money we use is debt so to expand the economy we must expand debt. Correct that and we can *start* to gain a stable economy.

 

Comments 5 of 8

 

More Business stories

RSS

BBC Business Live

  1.  
    TESCO SHARES 08:09: Breaking News

    Tesco's share price falls by more than 10% in the first few minutes of trading in London.

     
  2.  
    MOSS BROS PROFITS 08:04:

    Menswear retailer Moss Bros has reported a pre-tax profit of £1.95m for the six months to July. That's slightly lower than their previous guidance and reflects the number of stores that were closed for refit in the first half of this year, the company said. Like for like sales were 6.4% higher.

     
  3.  
    TESCO PROFITS Via Twitter Robert Peston Economics editor

    tweets: "Tesco! Oh my giddy aunt. Never thought it would come to this http://www.investegate.co.uk/tesco-plc--tsco-/rns/trading-update/201409220700142186S/ …

     
  4.  
    ALIBABA 07:55:
    Alibaba

    The Financial Times reports that Alibaba, the Chinese ecommerce group, has boosted the value of its IPO to $25bn (£15bn) by selling extra shares. That makes it the biggest IPO in history. Huge investor demand saw the company's share price surge 38% on its debut on the New York Stock Exchange on Friday.

     
  5.  
    TESCO PROFITS Via Twitter

    Richard Hunter from stockbrokers Hargreaves Lansdown tweets: "Profit warning on a profit warning for #Tesco likely to put further pressure on a share price already down 39% over the last year"

     
  6.  
    STOCK MARKET FLOAT 07:47:

    Other news from the stock market this morning: British bank Aldermore says it will float on the London Stock Exchange in October, aiming to raise £75m. Aldermore focuses on lending to small and medium-sized businesses and homeowners.

     
  7.  
    TESCO PROFITS Via Twitter Adam Parsons Business Correspondent

    tweets: "Dave Lewis initiated inquiry over weekend. Am told Philip Clarke has officially left Tesco, but remains available to talk to investigation."

     
  8.  
    PHONES 4U RESCUE 07:36:
    The Phones 4U shop sign.

    Phone network EE is to buy 58 Phones 4U stores - safeguarding 359 jobs - in a deal with administrator PricewaterhouseCoopers. The phone network was known to have entered negotiations over the weekend. On Friday Vodafone agreed to take over 140 Phones 4U shops.

     
  9.  
    TESCO PROFITS Via Twitter Adam Parsons Business Correspondent

    tweets: "Tesco were due to report Interims next week. That has now been cancelled."

     
  10.  
    LABOUR CONFERENCE 07:26: BBC Radio 4

    Labour shadow business secretary Chuka Umanna tells Today Labour is pro-business, but says: "What we have been clear about is we can't go back to business as usual and the kind of fast buck culture we saw in some parts of the economy that helped contribute to the 2008/09 crash."

     
  11.  
    TESCO PROFITS Via Twitter

    City grandee David Buik tweets: "It never rains but it pours dear old Tesco. It appears profits have been over-stated by £250 mn - shares could be down 5% at the opening."

     
  12.  
    TESCO PROFITS 07:15:
    A group of Tesco shopping trolleys

    "We have uncovered a serious issue and have responded accordingly," said Dave Lewis, who took over as the boss of Tesco last month. "The chairman and I have acted quickly to establish a comprehensive independent investigation. The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear."

     
  13.  
    TESCO PROFITS 07:11: Breaking News

    Tesco has released a statement saying it over-stated its expected profit for the six months to 23 August. In a trading statement on 29 August it said it expected half-year profits to be £1.1bn. It has now revised this down by £250m.

     
  14.  
    LISTEN AGAIN Via Twitter Adam Parsons Business Correspondent

    tweets: The #WUTM podcast. All yours: bbc.co.uk/podcasts/serie…

     
  15.  
    AIR FRANCE 07:03:
    Air France planes

    Pilots at Air France are looking ahead to a second week on strike this morning. France's transport minister Alain Vidalies says the fate of Air France is at stake in the dispute. Pilots are angry that the airline is expanding its budget carrier, which pays pilots less.

     
  16.  
    LABOUR ANTI-BUSINESS? 06:55: BBC Radio 4

    Lord Jones tells Today that Labour has not given business the credit it deserves. "Without the wealth that business creates you have no public sector, you have no taxation, you don't have one job in the country. That's how important business is," he says.

     
  17.  
    LABOUR ANTI-BUSINESS? 06:51: BBC Radio 4
    Digby Jones

    Lord Digby Jones, former head of the CBI and member of the last Labour government tells Today that Labour is casting doubt on its support for the UK business community. "Whatever the current shadow cabinet say - let's nationalise the banks, let's have a social market in energy, lets increase business taxes, whatever it may be - they are showing by their actions that they actually don't get it," he says.

     
  18.  
    DEVOLUTION 06:42: Radio 5 live

    Wake Up to Money has been discussing the prospects for more devolution across the UK in the wake of the "No" vote in Scotland. Tony Travers from the London School of Economics says the UK is one of the most centralised democracies in the world - 95% of tax revenues go straight to the exchequer.

     
  19.  
    MINIMUM WAGE 06:35: BBC Radio 4

    Is Labour leader Ed Miliband's pledge to raise the minimum wage to £8 per hour by 2020 anti-business?Simon Walker, head of the Institute of Directors, tells the Today programme he shares many of the Labour party's concerns - on energy prices, zero-hours contracts and wages. "But... we don't agree with Labour's instinct to legislate or regulate on these matters," he says.

     
  20.  
    MARKETS 06:29: BBC Breakfast
    Breakfast

    Breakfast's Steph McGovern is in the City in London before dawn this morning, talking to analysts and market traders about what's moving the markets after the "No" vote in Scotland last week. She'll be talking to a currency trader later to find out what's going to happen to the pound.

     
  21.  
    MINIMUM WAGE 06:18:

    Labour's leader Ed Miliband says Labour will put the minimum wage up to £8 an hour if they win the election next year - up from the £6.50 is due to rise to this October. The unions say that's not enough, and want £10 an hour, while the CBI warns any rise will "put jobs at risk".

     
  22.  
    LABOUR CONFERENCE 06:12:
    Labour shadow  chancellor Ed Balls

    Ed Balls is expected to say that Labour will reinstate the 50 top rate of tax in his speech to the party conference later today. That's not necessarily news. But Labour haven't been completely clear on whether they would reinstate the 50p tax band until now. The inclusion of the proposal essentially amounts to an election promise eight months out from the general election.

     
  23.  
    Phones 4U 06:02: Radio 5 live

    EE has confirmed it's looking into buy a few of those Phones 4 U shops now on the market. Judy Palmer from Begbies Traynor defends EE and Vodafone, the operators accused of helping to put the mobile retailer out of business, on Wake Up to Money calling their actions "commercial hardball".

     
  24.  
    06:01: Edwin Lane Business reporter, BBC News

    Hello all. We're also getting the latest on the fate of Phones 4U, after it went into administration last week. Get in touch with us on bizlivepage@bbc.co.uk or tweet us @BBCBusiness.

     
  25.  
    0600: Matthew West Business Reporter

    Morning folks. We start the day with news that luxury shoe brand Jimmy Choo is looking at a stock market float in London, there are also half year results from Moss Bros. The Labour party conference goes into its second full day with a speech from shadow chancellor Ed Balls. It's his last conference speech before the election so we'll bring you any nuggets from that too. Stay with us.

     

Features

From BBC Capital

Programmes

  • StudentsClick Watch

    Could a new social network help tailor lessons to students’ needs and spot when they fall behind?

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.