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IMF upgrades UK growth forecasts

Saleha Riaz
·3-min read
The economic outlook report said that in advanced economies like the UK, the vulnerable population is getting vaccinated and contact-intensive activities are expected to resume. Photo: Tolga Akmen/AFP
The economic outlook report said that in advanced economies like the UK, the vulnerable population is getting vaccinated and contact-intensive activities are expected to resume. Photo: Tolga Akmen/AFP

The IMF upgraded UK's GDP growth for 2021 and 2022, but said activity in the country, along with the euro area, is expected to remain below end-of-2019 levels for the next couple of years.

The IMF's latest World Economic Outlook report said UK's economy would grow by 5.3% in 2021, up from a previous forecast of 4.5% it made in January. It also revised its GDP growth for 2022 by 1.9 percentage points to 5.1%.

UK chancellor Rishi Sunak said: “Our package of support continues to be one of the largest and most comprehensive in the world, with more than £350bn ($484bn) spent on the response to COVID so far.

"As we progress with the UK’s roadmap and the vaccine rollout, I believe there are reasons for optimism, and we are paving the way for brighter times ahead. We will continue to work closely with our G7 and G20 partners to help ensure that no country is left behind in the global economic recovery from the pandemic." 

The IMF report comes after positive news from last week, when the Office for National Statistics (ONS) said its analysis suggested that UK GDP grew by slightly more than expected in the final quarter of 2020.

It said the UK economy expanded by 1.3% in the final three months of last year, up from an initial estimate of 1% growth.

The report said that in advanced economies the vulnerable population is getting vaccinated and contact-intensive activities are expected to resume. It expects this to drive a significant pickup in growth thanks to pent-up demand funded by savings in 2020.

In the UK, more than 31 million people have received at least one dose of a coronavirus vaccine and more than 5 million have received their second dose.

However, the report noted occasional regional restrictions will likely be necessary at times to stem the progression of new strains of the virus.

In the euro area and the UK, the report expects activity to remain below end-of-2019 levels into 2022. In comparison, the US is projected to return to end-of-2019 activity levels in the first half of 2021 and Japan in the second half.

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This gap "can be traced back to differences in behavioural and public health responses to infections, flexibility and adaptability of economic activity to low mobility, pre-existing trends, and structural rigidities predating the crisis," it said.

While the near-term recovery could be tempered by the resurgence of COVID-19 cases in several major economies, evidence from social distancing measures in Europe and the UK suggests a relatively limited impact on manufacturing activity, the report added.

It said this was in part because containment measures have not been as strict as in April and May, and disruptions to production and supply chains have been less severe.

As per UK prime minister Boris Johnson's roadmap to ease lockdown restrictions, retailers and outdoor hospitality venues may reopen from 12 April in England.

International travel and indoor door hospitality venues such as restaurants, pubs, cafes and bars, as well as theatres, hotels, B&Bs and sports stadia will have to wait until at least 17 May to see restrictions lifted. 

Overall, the IMF's report projected a stronger recovery in 2021 and 2022 for the global economy compared to our previous forecast, with growth projected to be 6% in 2021 and 4.4% in 2022. 

But it said "the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis."

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