WASHINGTON, Oct 22 (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.
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.
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.
“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.
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.
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Reporting by David Milliken; Editing by William Schomberg and Hugh Lawson
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