The upward revision comes after Britain is expected to fall into a mild recession in the second half of 2023, following two years of stagnation. But GDP growth in May was 0.4%, beating analysts’ expectations, with summer events such as the Euro 2024 soccer championships and Taylor Swift’s Hellas Tour expected to boost economic activity.
Earlier this month, investment bank Goldman Sachs raised its forecast for UK economic growth by 0.1 percentage point to 1.6% in 2025. It cited Prime Minister Keir Starmer’s new Labour government’s fiscal plans, which include plans for reform and closer trading ties with the European Union.
Deutsche Bank on Friday echoed Goldman in brightening its outlook for the UK economy, saying economists now expect GDP growth of 1.2% this year, well above the previous forecast of 0.8%.
Deutsche Bank said the country’s gross domestic product in May showed strength in the professional services and construction sectors and that it expected the Euros to provide a further boost to the hospitality and leisure sector.
Meanwhile, analysts at Jefferies said in a recent report that the UK looks “relatively stable” with Labour holding a majority in Parliament, which, combined with regulatory reforms, could make British assets more attractive.
The announcement comes as the Bank of England is expected to start cutting interest rates in the coming months. British inflation hit the central bank’s 2% target in May, and economists polled by Reuters expect inflation to fall further to 1.9% in Wednesday’s announcement.
Other economies for which the IMF revised up its 2024 growth forecasts on Tuesday included the euro area (up 0.1 percentage points to 0.9 percent), Spain (up 0.5 percentage points to 2.4 percent) and China (up 0.4 percentage points to 5 percent).
The company lowered its forecast for U.S. economic growth by 0.1 percentage point to 2.6%.
The organization expects global economic growth to reach 3.2 percent this year, and said the global economy and world trade were strong, driven in particular by strong exports from Asia.
But he warned that the services sector in general was slowing the deflation process, complicating monetary policy decisions.
“Escalating trade tensions and growing policy uncertainty increase the risks of rising inflation and the prospects of interest rates remaining elevated for a longer period,” the World Economic Outlook said.
—CNBC’s Sophie Kidderlin and Vicki McKeever contributed.