Chancellor George Osborne has been handed a massive boost after the International Monetary Fund (IMF) upgraded its forecast for UK economic growth by more than any other major economy.
Just six months ago, the IMF downgraded its expectations for the British economy and warned that the Westminster coalition’s policies were the economic equivalent of “playing with fire”.
But in its six-monthly World Economic Outlook yesterday, the IMF predicted that the UK’s gross domestic product – the broadest measure of economic growth – would increase by 1.4% this year and 1.9% in 2014.
That compares to a forecast of just 0.9% and 1.5% respectively when it last updated its projections in July.
However, it said that it would still take years before Britain’s economy recovers fully from the effects of the collapse of 2008.
It suggested the UK Government should now bring forward public investment projects to offset the squeeze on near-term Whitehall spending.
“In the United Kingdom, recent data have shown welcome signs of an improving economy, consistent with increasing consumer and business confidence, but output remains well below its pre-crisis peak,” it said.
The IMF said that with interest rates remaining low, the government could afford to do more to boost growth through long-term investment projects while sticking to its plan for tackling the deficit.
While it welcomed the system of “forward guidance” on interest rates adopted by the Bank of England under governor Mark Carney, the IMF said “greater co-ordination” was needed across the newly-established system of regulatory bodies, including the Bank’s financial policy committee. The IMF also highlighted the continuing problems in the eurozone, where economic activity is forecast to shrink by around 0.5% in 2013 after a similar contraction the previous year.
The Treasury said the upgrade in the UK’s growth forecast – the biggest for any of the G7 nations – showed the government’s economic strategy was working.
“The IMF has confirmed that the UK economy is turning a corner, by revising up its forecast for growth over the next two years by more than for any other G7 economy,” a spokesman said.
“But risks to the global economy remain high, and the recovery cannot be taken for granted. That is why the government will not let up in implementing its economic plan, which has already cut the deficit by a third, kept interest rates near record lows and created over a million-and-a-quarter jobs.”
For Labour, shadow chancellor Ed Balls said it still represented the slowest recovery for 100 years.