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IMF awards the UK the biggest economic growth upgrade in the G7

by: IFAonline
  • 09/10/2013
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IMF awards the UK the biggest economic growth upgrade in the G7
The International Monetary Fund has upgraded its growth forecast for the British economy amid what it called ‘welcome signs' of a pick-up in activity following the global crash.

The IMF last revised its forecast for the British economy in July, forecasting growth of 0.9% for the year and 1.5% in 2014, the Daily Mail reports.

That itself was an upward revision from 0.6% in April and was almost immediately beaten in August when official estimates showed the economy grew by 1.1% in the first six months of the year.

Now the IMF’s World Economic Outlook has predicted the British economy would grow by 1.4% this year and 1.9% next year.

As in July, the upward revision was the biggest for any G7 nation.

The forecast will come as welcome news to George Osborne, who was said to be furious with IMF chief economist Oliver Blanchard in April when he suggested the Chancellor’s austerity programme amounted to ‘playing with fire’.

The IMF also told the government ‘consideration should be given’ to loosening the fiscal straitjacket so that private sector spending could recover faster.

In a crucial departure from previous forecasts, 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 spending cuts to tackle the deficit.

‘In an environment of still low interest rates and underutilisation of resources, public investment can also be brought forward to offset the drag from planned near-term fiscal tightening, while staying within the medium-term fiscal framework,’ the outlook states.

But it forecasts it will still take years before Britain’s economy recovers fully from the effects of the collapse of 2008.

It suggested the 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 also welcomed Bank of England governor Mark Carney’s new policy of ‘forward guidance’ on interest rates but warned of the need for greater co-ordination across the newly-established system of regulatory bodies, including the Bank’s financial policy committee.

It is essential that regulators are ‘adequately resourced and operationally independent’, it said.

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