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"

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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.

 

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  • rate this
    +1

    Comment number 72.

    @ 39. Paul of Sutton C

    How do increased house prices and bankers' bonuses provide someone with a job?

  • 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
    +2

    Comment number 70.

    When are UK workers going to get their share of this reported growth?

  • rate this
    -1

    Comment number 69.

    @59. LMAO - the credit crunch and attendant banking crisis happened on GORDON BROWN'S watch!!!! Get your facts straight before slinging mud.

  • rate this
    +3

    Comment number 68.

    It seems only 5 minutes since the IMF were saying we would need to change to Plan B to get growth.....

  • rate this
    +3

    Comment number 67.

    If George Osborne is so confident about British Growth then he should increase interest rates like the IMF says he should.

    Then we'll see if Britain industry has actually been growing or if all this growth was just from house prices in the South East

  • rate this
    0

    Comment number 66.

    The USA remains critical whatever your politics. US GDP is about 25% of world GDP and it continues to be a technology leader. We all need a strong US economy. Slow growth in the Eurozone is a worry. Only Germany remains a world class economy and still the world's second largest trading nation after PRC. Like it or not we are all exposed to the world economy.

  • rate this
    -2

    Comment number 65.

    @60.Ozymandias

    "I agree, Labour will get in and ruin the economy again! Shame so many Labour voters can't see past their selfish lefty ways!"

    Agreed...6 million public sector workers plus add in the unemployed and wrinkly voters and Labour will landslide.

    Shame just as things are really starting to turn around.

  • rate this
    -4

    Comment number 64.

    This is good news… unfortunately only for the very people who created the economic meltdown and were largely immune from its consequences. Still, they can reflect with quiet satisfaction on issues such as bedroom tax, bankers bonuses, MPs expenses and so on with the sure and certain knowledge we were never all in this together.

  • rate this
    -1

    Comment number 63.

    What caused the recession? And what is it suggested is going to get us out of recession?

  • rate this
    +2

    Comment number 62.

    Growth is great, but I worry it's too much to quickly and based on consumer debt and a housing bubble centred in the SE.
    In the North East and West, things are still pretty bad, many northern areas are more or less, still in recession.
    The recovery is not balanced and unstable. What happens even with a little interest rate rise after years of the lowest rates ever?

  • rate this
    -40

    Comment number 61.

    Tory luvie day on here i see

  • rate this
    +1

    Comment number 60.

    @36.Joe
    I agree, Labour will get in and ruin the economy again! Shame so many Labour voters can't see past their selfish lefty ways!

  • rate this
    -65

    Comment number 59.

    Hopefully a Labour government can take up next year where they left off, before they were so rudely interrupted by Tory bankers bringing down the economy.

  • 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
    -2

    Comment number 57.

    43. jgm2
    He must be distraught that the UK economy hasn't collapsed.
    _______

    Like the Tories were rubbing their hands when the global economic crisis hit? Ah, yes, politicians. Bloodsuckers, the lot of them.

  • rate this
    +1

    Comment number 56.

    Britain is set for a rate of 2.9%.

    France, who's economic plan was hailed by Milliband, is set for 1.0%. Hmmm, wonder if Labour has got a credible Plan C somewhere up their collective sleeve...

  • rate this
    -48

    Comment number 55.

    I seem to remember it was quite similar in 2010 - then the Tories damaged the economy, and now in spite of them it's beginning to recover.

    The average is 3.5%, so we are still way below the world average - this is some cause for concern still.

  • 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.

  • rate this
    -2

    Comment number 53.

    Economy growing? How can that be with an enormous trade deficit?
    Maybe its because we are letting greedy building companys (with politicians on the board of course) build expensive houses on flood plains that no honest person can really afford.Plus of course unemployment is coming down because we will all end up in part-time jobs,because we now have far to many people in our small island!

 

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