IMF rethinks gloomy forecast for Britain

The International Monetary Fund (IMF) will this week take a fresh look at its gloom-laden predictions for Britain’s economy.

A team from Washington DC is in London to administer its yearly health check on the UK.

It will deliver its verdict following a round of top-level meetings with the Bank of England, the Treasury, independent watchdogs at the Office for Budget Responsibility and City regulator the Financial Conduct Authority.

The fund is currently forecasting that the UK will be the weakest of all major industrialised countries, with the economy shrinking by 0.3 per cent this year.

But Chancellor Jeremy Hunt, who has vowed to prove the fund wrong, argues that the UK will outperform.

Confident: Chancellor Jeremy Hunt, who has vowed to prove the IMF wrong, argues that the UK will outperform

IMF managing director Kristalina Georgieva and Hunt will host a press conference on Tuesday to discuss the Fund’s findings.

It promises to be a lively affair.

Hunt has accused the IMF of consistently underestimating the UK and recently clashed with Georgieva, telling her the UK economy was the fastest-growing in the G7 last year and had avoided recession so far.

Speaking at last month’s IMF spring meeting in Washington, he said it had ‘undershot’ its forecasts for the UK economy in ‘every year since 2016 bar one’ and was ‘just one of a number of forecasters’.

The IMF has a consistent record of being overly negative about the UK’s outlook.

Of its 28 predictions about Britain’s economy between 2016 and 2022, 23 were too bleak. Just three were too optimistic.

Its latest bout of gloomy forecasting may well add to the pessimistic tally.

Recent developments in the UK’s prospects have put pressure on the IMF to rethink its downbeat attitude to Britain.

‘With each passing month the IMF forecast looks to be wrong,’ said a Treasury source.

The IMF squad arrived last week as part of an annual inspection – known as Article IV – where economic and financial information is collected, and developments and policies discussed.

The UK has been at the bottom of the fund’s growth projections for almost a year, with its economists citing high energy prices and interest rates as factors.

As recently as last month it was predicting that UK output would shrink by 0.6 per cent.

But it was forced to upgrade that dismal projection as the economy proved to be more resilient than had been expected.

Hunt said this was due to the Government’s reversal of former prime minister Liz Truss’s mini-Budget policies last year, which sparked market turmoil and criticism from the IMF.

Hunt received a boost earlier this month when the Bank of England changed its mind on the outlook.

The Bank now thinks that the UK will avoid a recession this year and achieve a soft landing following a dozen interest rate hikes in succession to tame the country’s double-digit inflation.

It pointed to stronger global growth, lower energy prices, and a stronger than expected labour market for its U-turn.

Figures out this week are expected to show the overall pace of price rises has slowed to 8.3 per cent, though food inflation remains double that rate.

Apart from the UK, Germany is the only other major economy that the IMF, the global lender of last resort, expects to decline this year.

The Bank of England expects inflation to fall sharply this year and get back below its 2 per cent target in 2024.

But experts are worried that firms will continue to pass on recent energy hikes to their customers via higher prices, meaning interest rates may have to stay higher for longer.

Bank of England Governor Andrew Bailey last week admitted the wage and price spiral unleashed by inflation could take longer to tame than it did to emerge.

He is concerned about so-called ‘second-round effects’, when an external shock such as the Ukraine war sets off a cycle of firms raising prices and workers demanding higher wages.

Bailey has faced criticism for not putting rates up sooner as the economy emerged from the pandemic, allowing inflation to rip.

The Bank has since allowed 12 rate rises in a row, taking the official cost of borrowing to 4.5 per cent – its highest in 15 years.

Traders expect at least one more hike this year.

The IMF works with 190 member states to ensure responsible spending. It also offers cheap loans to low-income countries.

In 1976 the Labour government had to apply to the IMF for an emergency loan of nearly $4 billion (£3.2 billion) – its largest ever at the time – to prop up the pound.

In return the fund insisted on deep cuts in public expenditure.

This post first appeared on Dailymail.co.uk