IMF Boosts UK Growth Forecast, Signaling Economic Confidence in New Labour Government

The International Monetary Fund has raised its 2024 growth forecast for the United Kingdom from 0.5% to 0.7%, providing a positive outlook for the new Labour government led by Prime Minister Keir Starmer. The IMF's July update also reaffirmed a 1.5% growth projection for 2025.

IMF Raises UK 2024 Growth Forecast to 0.7%, Highlighting Economic Stimulus from New Labour Policies

The International Monetary Fund increased its 2024 growth forecast from 0.5% to 0.7% on July 16, providing additional stimulus to the United Kingdom's new government, according to CNBC report.

In the July update of its World Economic Outlook, the International Monetary Fund (IMF), headquartered in Washington, D.C., reaffirmed its projection of 1.5% growth in the United Kingdom in 2025.

The enhancements result from two years of stagnation, which coincided with the United Kingdom's descent into a shallow recession in the latter half of 2023. In May, GDP growth exceeded analyst expectations by 0.4%. Additionally, summer events such as the Euro 2024 soccer championship and Taylor Swift's Eras Tour are anticipated to stimulate economic activity.

Goldman Sachs, an investment bank, revised its 2025 U.K. economy forecast by 0.1 percentage point to 1.6% earlier this month. It referenced the fiscal policies of the new Labour government, which Prime Minister Keir Starmer heads. These policies encompass planning reform and enhanced trade relations with the European Union.

Deutsche Bank and Goldman Sachs both upgraded their outlook for the United Kingdom. In a note, economists stated that they anticipate a 1.2% increase in gross domestic product this year, significantly higher than their previous forecast of 0.8%.

Deutsche Bank stated that the country's GDP in May demonstrated the resilience of the construction and professional services sectors. The Euros tournament is anticipated to provide an additional impetus to the hospitality and leisure sectors.

Jefferies Analysts Highlight Stability from Labour's Majority, Anticipate UK Asset Appeal with Regulatory Reform

In a recent note, analysts at Jefferies stated that the size of Labour's parliamentary majority would render the U.K. appear "relatively stable." They also suggested that this, in conjunction with regulatory reform, could increase the appeal of assets in the country.

This comes as the Bank of England is anticipated to begin reducing interest rates in the upcoming months. U.K. inflation exceeded the central bank's 2% target in May, and economists surveyed by Reuters expect it to continue declining to 1.9% in the upcoming print.

Other economies that received a 2024 growth upgrade from the IMF on July 16 included the eurozone, which increased by 0.1 percentage points to 0.9%; Spain, which increased by 0.5 percentage points to 2.4%; and China, which increased by 0.4 percentage points to 5%.

The U.S. economy's forecast was reduced by 0.1 percentage point to 2.6%.

The organization anticipates a 3.2% increase in global growth this year and reported that global activity and world trade were more stable, mainly due to robust Asian exports.

Nevertheless, it cautioned that the services sector impeded the disinflation process, complicating monetary policy decisions.

"In the context of escalating trade tensions and increased policy uncertainty, the prospect of higher-for-even-longer interest rates has increased, thus increasing the upside risks to inflation," the IMF stated in the World Economic Outlook.