IMF upgrades UK economic growth to 2.9% in 2014

 

The UK is set to be the world's fastest-growing major advanced economy this year according to a sharply-upgraded forecast from the International Monetary Fund

Gross domestic product (GDP) is expected to increase by 2.9% this year, up from an earlier 2.4% prediction by the global body.

It puts Britain ahead of the US on 2.8%, Germany on 1.7% and Canada at 2.3%. The new figures also upgrade UK growth for next year though they still predict it will be slower than this year.

The latest World Economic Outlook also gives its backing to policies pursued by Chancellor George Osborne and Bank of England governor Mark Carney.

But it sounds a warning over the risk posed by surging house prices and the threat of deflation in the eurozone.

The IMF predicts world growth will accelerate to 3.6% this year and 3.9% in 2015 though it warns that the global recovery is still "fragile" with risks including turbulence from emerging market economies.

But chief economist Olivier Blanchard said: "Put simply, the recovery is strengthening. The various brakes that hampered growth are being slowly loosened."

Tax and spending tightening was slowing and investors are becoming less worried about debt, while banks are becoming stronger.

Mr Blanchard said while the global economy was "far short of a full recovery", normal monetary policy - meaning a withdrawal from stimulus measures such as ultra-low interest rates and money printing - was now on the agenda.

The report warned that policymakers must "avoid a premature withdrawal of monetary accommodation" - supporting Mr Carney's caution about any immediate increase in interest rates.

It also explicitly called on the European Central Bank to take deeper stimulus measures - which it has so far avoided - to try to prevent a deflationary spiral that would put pressure on borrowers and weaken demand and output.

The report said UK growth had "rebounded more strongly than anticipated" though the recovery remained unbalanced, with business investments and exports remaining disappointing.

It said the Bank's monetary policy - which has seen interest rates held at 0.5% for four years and £375 billion of quantitative easing pumped into the economy - should remain "accommodative".

The IMF also backed the Bank's decision to dump forward guidance linking interest rates to unemployment in favour of a link to a more opaque measure of the how far the economy is performing below capacity.

"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," the report said.

It also backed efforts to continue to restore financial sector soundness, but said the UK should "guard against any build-up of financial vulnerabilities, including from surging house prices".

The IMF upgraded its forecast for UK growth in 2015 from 2.2% to 2.5%. But that will still represent a fall on 2014, while the US is expected to see growth accelerate to 3% next year.

A Treasury spokesman said the upgraded forecast was "further evidence that the Government's long-term economic plan is working".

But shadow chancellor Ed Balls said millions were still worse off than when the Coalition came to power and had yet to feel the benefits of economic improvement.

He said: "The IMF is right to warn about an unbalanced recovery and it is concerning that growth is expected to slow down next year.

"The Government should also heed the IMF's warnings about surging house prices by taking action to boost housing supply, as we have called for."

Mr Osborne tweeted: "Good news from IMF: UK forecast to grow faster than any other western country + has biggest upgrade."

But he added: "Job is not done. We need to do more to get our exports and investment going."

The IMF forecast for growth this year is higher than the 2.7% predicted by the Office for Budget Responsibility. But it is lower than the Bank of England's prediction of 3.4% growth.

It marks a sharp turnaround from a year ago when the IMF slashed its outlook for the UK and suggested that Mr Osborne should consider changing his austerity policies. At that time, it cut its forecast for growth to 1.5%.

PA

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor