IMF raises UK growth forecast but trade and output data disappoint

The International Monetary Fund partially reversed its previous cut to its UK growth forecasts yesterday, but weak manufacturing figures showed that the economy remains deeply unbalanced.

The Chancellor George Osborne's Treasury team was quietly enjoying the IMF upgrade, which came just a few weeks after it sharply cut UK growth forecasts for this year, and followed a flurry of good economic news. However, the prediction of a 0.9 per cent growth rate this year remained below the IMF's projection of 1.1 per cent as recently as last October, while it left next year's forecast unchanged.

The fund's chief economist, Olivier Blanchard, repeated his call on the UK, and other key advanced economies to rein in austerity measures.

Meanwhile, a double whammy of bad UK news – from the industrial sector and a widening trade deficit – gave further cause for caution. Manufacturing output shrank by a bigger-than-expected 0.8 per cent in May, disappointing economists who had pencilled in a rise. Melanie Bowler, the UK economist at Moody's Analytics, said it could take until "close to the end of the decade" for manufacturers to make a full recovery as output lags 13 per cent below its pre-recession peak.

The UK's goods trade gap with the rest of the world widened to £8.5bn in May.

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