LONDON — The International Monetary Fund on Tuesday lifted its 2024 growth outlook for the U.K. to 0.7% from 0.5%, providing a further boost to the country's new government.
Looking ahead, the Washington, D.C.-based IMF reiterated its forecast for 1.5% U.K. growth in 2025 in the July update of its World Economic Outlook.
The upgrades come after two years of stagnation, with the U.K. falling into a shallow recession in the second half of 2023. However, GDP growth in May came in above analyst expectations at 0.4%, while summer events including the Euro 2024 soccer championship and even Taylor Swift's Eras Tour are expected to bolster economic activity.
Investment bank Goldman Sachs earlier this month nudged its 2025 forecast for the U.K. economy 0.1 percentage point higher, to 1.6%. It cited the fiscal plans of the new Labour government led by Prime Minister Keir Starmer, which include planning reform and closer trade ties with the European Union.
Deutsche Bank on Friday joined Goldman in brightening its U.K. outlook, with economists saying in a note they now expect gross domestic product growth of 1.2% this year, well above their earlier 0.8% forecast.
The country's GDP in May showed the strength of sectors across professional services and construction, Deutsche Bank said, with the Euros tournament expected to provide a further boost to hospitality and leisure.
Analysts at Jefferies, meanwhile, said in a recent note that the size of Labour's parliamentary majority would make the U.K. appear "relatively stable," and that in tandem with regulatory reform may raise the attractiveness of assets in the country.
It comes as the Bank of England is expected to start bringing down interest rates in the coming months. U.K. inflation hit the central bank's 2% target in May, and economists polled by Reuters see it declining further to 1.9% in Wednesday's print.
Other economies given a 2024 growth upgrade by the IMF on Tuesday included the euro zone, which it lifted by 0.1 percentage point to 0.9%, Spain, up 0.5 percentage point to 2.4%, and China, up 0.4 percentage point to 5%.
It lowered its forecast for the U.S. economy by 0.1 percentage point to 2.6%.
The organization sees worldwide growth at 3.2% this year, and said global activity and world trade were firmer, particularly due to strong exports from Asia.
However, it warned that the services sector was broadly holding up the disinflation process, complicating monetary policy decisions.
"Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates, in the context of escalating trade tensions and increased policy uncertainty," the IMF said in the World Economic Outlook.
— CNBC's Sophie Kiderlin and Vicky McKeever contributed.
