IMF: British economy approaching soft landing
The International Monetary Fund (IMF) reported that the British economy is approaching a soft landing after last year’s technical recession and that the next step in monetary policy is “easing”.
The final statement of the IMF team’s assessment of the British economy within the scope of Article 5 has been published. In the statement, it was stated that economic growth in the UK recovered faster than expected.
With the impact of this recovery, it was stated in the statement that the British economy was approaching a soft landing after the “mild technical recession” seen in 2023, and that economic growth in the first quarter of this year was 0.6 percent.
In the statement, it was stated that the IMF increased its economic growth expectation in England from 0.5 percent to 0.7 percent this year, and that growth will increase to 1.5 percent in 2025 as disinflation increases real incomes and eases financial conditions.
In the statement, it was noted that disinflation in the country progressed faster than expected, but service sector inflation and wage increase pressures remained high.
“Headline inflation will reach the 2 percent target by the beginning of 2025”
The following evaluations were included in the declaration, in which it was predicted that headline inflation would permanently reach the 2 percent target at the beginning of 2025:
“Risks regarding growth and inflation are balanced. If the secondary effects arising from falling energy prices are stronger and allow earlier and larger interest rate cuts, inflation may be lower and growth may be higher. If domestic demand does not revive as expected and savings continue to remain high, inflation will “And growth could remain low. In the event of global financial instability, the possibility of a shock to UK sovereign risk premiums cannot be ruled out.”
“The next step in monetary policy is easing”
In the statement, it was stated that the Bank of England (BoE) has reached a turning point in its monetary policy and the next step in the policy is relaxation, and said, “The real question is when and how quickly the interest rate will be reduced. In this context, the BoE Monetary Policy Committee (PPK) has avoided the risk of early loosening.” “In order to be protected, it is necessary to see the base effect of energy prices and see more signs that inflation is decreasing sustainably. At the same time, there is a risk of delayed easing.” expressions were used.
In the statement, it was stated that keeping the policy rate constant while inflation and inflation expectations are decreasing carries the risk of stopping or even reversing the economic recovery.
“Monetary policy should continue to closely monitor and obtain information from future data and the outlook for risks, particularly on inflation and the labor market, over the next few weeks, and make adjustments where necessary. In this context, the MPC’s current policy, which includes assessing the accumulation of evidence on persistent inflationary pressure, should be continued.” “The ‘meeting-to-meeting evaluation’ approach is appropriate. Moreover, a possible deviation of the BoE MPC from the US Federal Reserve’s interest rate path will add value to the effective communication of the MPC with the markets.”