IMF raises UK growth forecast, warns on debt as finance minister readies budget

By David Milliken

WASHINGTON (Reuters) -The International Monetary Fund on Tuesday raised its forecast for British economic growth this year but said the country could not take its eye off rising public debt, as finance minister Rachel Reeves prepares her first annual budget.

The IMF said it expected 2024 growth of 1.1% this year, up from its previous forecast of 0.7%, due to lower inflation and a cut in Bank of England interest rates. It did not raise its outlook for 2025.

IMF chief economist Pierre-Olivier Gourinchas also warned that Britain, like many other rich nations, required robust plans to stop the rise in levels of public debt.

“There is a need to bring debt levels down, stabilise them when they are not stabilised and rebuild fiscal buffers,” he said as the IMF presented its latest forecasts.

Britain’s government currently has a rule that budgets must ensure public debt falls between the fourth and fifth year of official forecasts from its budget watchdog. Reeves is considering changing the definition of debt used in her Oct. 30 budget to allow more borrowing for long-term investment.

Gourinchas said rich countries faced a “narrow path” between not hurting growth and not overborrowing.

“When countries have elevated debt levels, when interest rates are high, when growth is OK but not great, there is a risk that things could escalate or get out of control quickly,” he said.

Earlier on Tuesday, data showed British government borrowing between April and September was 7 billion pounds ($9 billion) more than the budget watchdog expected.

Last month from the Organisation for Economic Co-operation and Development said Britain’s debt rule had curtailed public investment without successfully containing debt.

GROWTH UPGRADE

Britain’s was the largest IMF forecast upgrade of any of the Group of Seven economies, and the country is now on track to have the joint third-fastest growth in the G7 alongside France.

The news was seized on by the Conservative opposition to the new Labour Party government, who dispute Reeves’ claim that they left a poor economic legacy after 14 years in power.

“Today’s data from the IMF confirm the economic inheritance from the last Conservative government was strong,” former finance minister Jeremy Hunt said.

The IMF’s 2024 forecast is now higher than the Office for Budget Responsibility’s projections which underpin government budget plans.

But the Fund is less optimistic about 2025 than the OBR, limiting the potential upside for Reeves, who said she would press ahead with shoring up the public finances.

“That is why the budget next week will be about fixing the foundations to deliver change, so we can protect working people, fix the NHS (National Health Service) and rebuild Britain,” she said.

Reeves and Prime Minister Keir Starmer have suggested higher taxes on employers and wealthier people are likely in the budget.

Last year Britain’s economy grew 0.3% and suffered a shallow recession in the second half of the year, but it rebounded relatively strongly in the first six months of 2024.

Adjusted for population growth, Britain’s performance is less impressive. The IMF estimates GDP per head will rise by 0.6% this year and 1.1% next year – well short of Reeves’ goal to top the G7 rankings for two consecutive years.

Inflation this year is forecast to average 2.6%, the second-highest in the G7, before averaging 2.1% in 2025, close to the BoE’s 2% target.

($1 = 0.7706 pounds)