IMF upgrades UK growth forecasts ahead of Budget - here is what it means

The upgrade comes ahead of chancellor Rachel Reeves's first Budget on 30 October, where she intends to explain how she will further boost UK economic growth

Chancellor Rachel Reeves in front of 11 Downing Street
(Image credit: Hollie Adams/Bloomberg via Getty Images)

The UK economy is on track to expand faster than expected, with the International Monetary Fund (IMF) upgrading its growth predictions for the country ahead of this month’s Budget.

The IMF said UK gross domestic product (GDP) will rise by 1.1% this year - a significant increase on its previous forecast of 0.7% in July.

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Describing Britain’s economic growth as “robust", the OECD said the UK economy was on course to expand by 1.1% this year, compared to a forecast of just 0.4% in the spring.

What does the IMF upgrade mean for the UK economy and interest rates?

The revised figures will be pleasing for the UK government as it shows the British economy is moving in the right direction. However, the fact the IMF and the OECD believe the UK will still face high inflation over the course of the year is bad news for those calling for more cuts to interest rates.

Speaking after the Bank of England’s September decision to hold interest rates at 5%, governor Andrew Bailey said the MPC “should be able to reduce rates gradually over time” as long as there aren’t any surprises in the data. However, he was clear that the MPC would follow a cautious path ahead. “It’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much,” he said.

Speaking in an interview with The Guardian a couple of weeks later, he displayed a slight shift in tone, adding that UK policymakers could become a “bit more aggressive” in their approach if inflation continues to cool.

The MPC does not meet in October, which means it only has two remaining meetings this year – one in November followed by another in December.

The majority of experts have said another rate cut now looks likely in November, after September's inflation reading came in at 1.7%. Some believe another cut could potentially follow in December, but much will depend on the economic data playing ball. Wage growth, core inflation and services inflation are all important metrics to watch.

Chris Newlands

Chris is a freelance journalist, and was previously an editor and correspondent at the Financial Times as well as the business and money editor at The i Newspaper. He is also the author of the Virgin Money Maker, the personal finance guide published by Virgin Books, and has written for the BBC, The Wall Street Journal, The Independent, South China Morning Post, TimeOut, Barron's and The Guardian. He is a graduate in Economics.