UK growth outlook upgraded by IMF; ECB weighs September rate cut
The IMF has given the UK economy a boost by upgrading its 2024 growth forecast from 0.5% to 0.7%. This news comes as a relief for the new government, hoping to steer the country out of a sluggish period.
The IMF also stuck to its previous prediction of 1.5% growth for 2025. This upgrade follows a tough couple of years for the UK, with a shallow recession in the second half of 2023. But things are looking up.
In May, the UK’s GDP grew by 0.4%, which was better than expected. Upcoming events like the Euro 2024 soccer championship and Taylor Swift’s Eras Tour are also expected to boost economic activity.
Related: How the UK and US elections affect ECB’s rate cut plans
Goldman Sachs has also improved its forecast for the UK, raising the 2025 growth outlook to 1.6%. They credit the fiscal plans of Prime Minister Keir Starmer’s Labour government, which plans to reform planning and strengthen trade ties with the EU.
Deutsche Bank joined in with an optimistic outlook. Their economists now expect the UK’s GDP to grow by 1.2% this year, up from an earlier forecast of 0.8%. They point to strong performances in professional services and construction.
The Bank of England is expected to start lowering interest rates soon. The UK hit the central bank’s 2% inflation target in May, and economists surveyed by Reuters predict a further drop to 1.9%.
Related: Federal Reserve’s Jerome Powell changes his strategy for cutting rates
The IMF also upgraded its growth forecasts for other economies. The Eurozone’s 2024 outlook was increased by 0.1 percentage point to 0.9%. Spain saw a bigger boost, with its forecast raised by 0.5 percentage points to 2.4%.
China’s growth forecast was upped by 0.4 percentage points to 5%. Meanwhile, the U.S. economy’s forecast was slightly lowered by 0.1 percentage point to 2.6%.
The European Central Bank (ECB) is expected to keep interest rates unchanged at its upcoming meeting. Investors will be looking for clues about future moves.
The market is betting on a rate cut in September, with an 85% chance of the ECB lowering its benchmark deposit rate by 0.25 percentage points to 3.5%.
However, ECB policymakers are cautious. Some argue that strong wage growth (about 5% annually) and high services inflation (above 4%) call for caution. They also point to record-low unemployment at 6.4% as a reason not to rush into further rate cuts.
