The UK’s economy is showing signs of a soft landing, with growth bouncing back quicker than anticipated, according to the International Monetary Fund (IMF).
After experiencing a mild technical recession in 2023, the economy is projected to grow by 0.7 percent in 2024, and further strengthen to 1.5 percent in 2025. Inflation has dropped significantly to nearly target levels, thanks to the reversal of the energy price shock and the impact of tight monetary policies.
Fiscal policies have remained stringent, focusing on medium-term debt stabilization. However, recent budgets included tax cuts aimed at boosting investment and employment. Inflation is expected to temporarily rise due to regulated energy prices but is forecasted to stabilize around 2 percent by early 2025.
Looking ahead, the long-term growth outlook remains modest due to low labor productivity growth, an aging population, and higher inactivity levels. Despite efforts to boost productivity and resolve post-Brexit uncertainties, challenges persist in public services, particularly in health.
The IMF outlines potential risks to growth and inflation, including lower consumption levels, stronger wage pressures, and disappointing productivity. However, bold structural reforms and AI adoption could present upside potential.
Overall, the IMF’s assessment provides a balanced view of the UK’s economic recovery, highlighting both positive momentum and persistent challenges.
