The UK economy will avoid recession this year.

Demand has recovered amid falling fuel prices, making the UK economic outlook less bleak, the agency said.

The IMF noted that economic activity in the UK has weakened significantly compared to last year. Inflation remains stubbornly high at 10.1%. The UK economy is suffering from the impact of the Russia-Ukraine conflict and prolonged supply shortages due to the Covid-19 pandemic.

However, the IMF said Britain had weathered the recent turmoil in the global banking industry, with a series of US regional banks going bankrupt, while Credit Suisse was bought at a price far below its market capitalization.

The IMF describes stability in the UK's financial system as a "global public good", referring to goods that generate positive externalities.

The organisation called on London to implement reforms to address the rising number of working-age unemployed post-pandemic; uncertainty over regulations for business investment; and accelerate the country's green transition.

The IMF forecast in April that the UK economy would contract by 0.3% in 2023, the lowest among the G20 countries. The agency has now raised its forecast for UK economic growth this year to 0.4%, up 0.7 percentage points.

The IMF also said UK GDP would grow by 1% next year as inflation slows and then average around 2% in 2025 and 2026.

However, IMF officials warned that inflation would only fall to 2% in the next three years and there was a risk that prices could remain higher for longer.

The figures came after IMF officials ended a two-week visit to Britain to assess the state of the economy ahead of its annual review.

UK Finance Minister Jeremy Hunt said the IMF's forecast was a major upgrade for the UK's growth outlook and credited the government 's actions in restoring stability and containing inflation.

The IMF's forecast for an upgrade in the UK economy is in line with other major institutions. Previously, the Bank of England's (BoE) Monetary Policy Committee (MPC) also said that the UK economy would not fall into recession this year. The agency forecast GDP to be flat in the first half of this year, then grow by 0.9% until the middle of next year, and continue to expand by 0.7% by the middle of 2025.

Like the IMF, the MPC believes that the turmoil in the global banking system will not have much impact on the UK economy, along with fiscal policies that help improve the economic outlook.

"Risks remain, but absent a further shock, the tightening of global credit conditions due to the latest banking sector developments should have only a small impact on GDP," the agency said.

Moreover, the country’s fuel cost burden has eased. Inflation is expected to fall sharply in April. Since the impact of the Russia-Ukraine conflict began to become apparent this time last year, the low base effect may disappear from April.

On the other hand, the British government has expanded its energy price stabilization program. Along with that, there has been a decline in input fuel prices. This could relieve inflationary pressure on consumers in this country.

However, the MPC said that UK inflation would cool at a lower rate than forecast in February. CPI could rise by around 5.1% year-on-year by the end of the year.

Minh Hoa (t/h)

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