UK economy expected to grow 0.7% in 2024, 1.5% in 2025: IMF

The UK economy is expected to grow by 0.7% this year and 1.5% next year, the International Monetary Fund (IMF) said Monday.

The financial agency said that Britain's economy is approaching a soft landing, a situation where a central bank raises interest rates too much and too high, leading to an economic slowdown but avoiding a recession.

It said economic growth in the country is recovering faster than expected after a mild technical recession in 2023

Inflation, meanwhile, has fallen rapidly to the near-term target from last year's double-digit levels due to the reversal of the energy price shock and the demand impact of tight monetary policy, it added.

Inflation is expected to temporarily increase from around 2% at the moment to 2.5% by the end of this year because of regulated energy price base effects, but it is forecast to return to 2% in early 2025, according to the IMF.

"Longer-term growth prospects remain subdued due to weak labor productivity growth, population aging and somewhat higher than expected inactivity levels due to long-term illness, only partly offset by higher migration numbers," the IMF said in a statement after its Executive Board concluded the Article IV consultation with the UK.

The agency noted that economic growth could be lower in the short term if the anticipated pick-up in consumption from the current weak levels does not materialize, or economic growth could be higher in the event of stronger-than-expected second-round effects from falling energy prices, which also represents a downside risk to inflation.

Meanwhile, stronger wage pressures could cause higher persistence to services inflation, according to the IMF.