Banca March | The IMF forecasts that the UK economy will avoid recession in 2023. Specifically, the body now expects growth for the current year of 0.4%, compared with the slight decline previously expected (-0.3%). The managing director of the Fund, Kristalina Georgieva, thus announced yesterday that the British economy values the evolution of the country’s economic situation particularly favourably compared with other G7 countries. The revision is mainly due to the improved outlook for domestic demand, which is proving more resilient than expected despite rising energy costs and supported by wage growth in sectors where there are labour shortages. The IMF also praises the government’s credibility after the “stress episode” suffered at the end of 2022, when the then Prime Minister Liz Truss announced a tax cut, with the consequent further deterioration of the public accounts, an announcement that was later reversed.
However, yesterday morning negative inflation data was published in the UK. CPI moderated in April less than expected, but the core rate picked up again and confirmed the elevated inflationary pressures in the UK economy. In particular, CPI growth moderated in April to +8.7% year-on-year from +10.1% previously, but this was five tenths of a percentage point above expectations. Moreover, the underlying rate, which excludes energy and food prices, picked up again: in April it rose by +6.8% year-on-year, six tenths of a percentage point more than the previous month and reaching new highs since the beginning of the 1990s. These data continue to confirm the high inflationary pressures on the economy and leave little room for manoeuvre for the Bank of England, increasing the likelihood of further rises in official interest rates.