Navigating through the choppy seas of economic uncertainties, the United Kingdom is expected to weather the storm and dodge a recession in 2023, according to a recent update by the International Monetary Fund (IMF).
Although the anticipated growth is “subdued,” with a rate of 0.4% for the year, it’s a positive shift from the IMF’s earlier prediction in April, which suggested that the UK’s output would contract by 0.3%.
The change is attributed to a “higher-than-expected resilience” in both demand and supply, fostered by the restored confidence following a decrease in post-Brexit uncertainties and a decline in energy prices.
Chancellor Jeremy Hunt greeted this forecast with optimism, considering it a “big upgrade” for the country’s growth prospects.
Will the UK Economy Grow in 2024?
Looking towards the future, the IMF has maintained its growth forecast for 2024, predicting that the economy will expand by 1% next year.
Beyond that, growth is anticipated to average about 2% in 2025 and 2026, primarily due to expected ease in monetary and financial conditions.
However, the IMF’s report also puts forth suggestions to address the pressing issue of skills shortages in the UK.
Amid ongoing debates in Westminster about the government’s immigration policy, the IMF advises “fine-tuning the immigration system to alleviate sectoral and skilled labour shortages and enhance labour market flexibility.”
This could provide a viable solution for small businesses struggling to find skilled personnel amidst challenging market conditions.
Economic Growth, Brexit and Inflation
Brexit continues to play a significant role in shaping the UK’s economic landscape.
The IMF applauded the UK and EU for finally striking a deal on the Northern Ireland Protocol and noted the “more measured approach for retained EU laws” as a beneficial move for businesses.
A return to the EU’s €100 billion Horizon programme, which supports small and medium-sized firms’ access to finance and research and design support, is also recommended by the IMF.
Additionally, the looming shadow of inflation has implications for the UK’s interest rates.
The Bank of England has been grappling with inflation, leading to a twelfth consecutive rise in the base interest rate to 4.5% earlier this month.
According to the IMF, this trend might continue for some time, with “monetary policy needing to remain tight to keep inflation expectations well-anchored and bring inflation back to target.”
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