International Monetary Fund or IMF stated in a latest update today that after a slowdown in the second half of 2024, an economic recovery is underway in UK and is expected to gain momentum. Growth is projected at 1.2 percent in 2025 and will gain momentum next year, although weak productivity continues to weigh on medium-term growth prospects. The authorities’ fiscal plans strike a good balance between supporting growth and safeguarding fiscal sustainability. It will be important to stay the course and deliver the planned deficit reduction over the next five years to stabilize net debt and reduce vulnerability to gilt market pressures.

IMF noted that further refinements of the fiscal framework could help minimize the frequency of fiscal policy changes. In the longer term, the UK will face difficult choices to align spending with available resources, given ageing-related expenditure pressures. The Bank of England (BoE) should continue to ease monetary policy gradually, while remaining flexible in light of elevated uncertainty. Calibrating the monetary policy stance has become more complex, given the recent pickup in inflation, still fragile growth, and higher long-term interest rates.

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