Fiscal policy has remained tight, continuing to target medium-term debt stabilisation, and inflation is forecast to temporarily rise from around 2 per cent at present to 2.5 per cent by end of the year due to regulated energy price base effects, before returning durably to 2 per cent in early 2025, the IMF executive board said after recently concluding the Article IV consultation with the country.
Longer-term growth prospects remain subdued, due to weak labour productivity growth, population aging and somewhat higher-than-expected inactivity levels due to long term illness, only partly offset by higher migration numbers, an IMF release said.
A number of well-conceived measures to boost weak productivity have also been implemented, but these will not be sufficient to lift productivity to close to levels before the global financial crisis, the IMF noted.
Post-Brexit uncertainty has continued to ease, in the context of progress on Irish border arrangements and a careful review of retained EU laws. However, UK firms trading with the EU are still adapting to the post-Brexit arrangement, it said.
Risks to growth and inflation are balanced. In the short term, growth could be lower if the anticipated pick-up in consumption from current weak levels does not materialise, or higher in the event of stronger-than-expected second round effects from falling energy prices.
The key downside risk to medium-term growth is that productivity and labour supply disappoint relative to expectations. But bold implementation of ambitious structural reforms and adoption of artificial intelligence present an upside risk to growth.
ALCHEMPro News Desk (DS)
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