As UK Economy Flatlines, Hunt Says IMF’s Forecast Is Too Pessimistic

Britain's Chancellor of the Exchequer Jeremy Hunt walks through spring flowers as he arrives to meet children and staff at Busy Bees Battersea Nursery in south London, on March 15, 2023, after delivering his Budget earlier in the day. (Stefan Rousseau/POOL/AFP via Getty Images)

Chancellor Jeremy Hunt has said the International Monetary Fund (IMF) has “undershot” its forecast for the UK in five out of the last six years.

The IMF has predicted the UK economy would contract by 0.3 percent this year but Hunt, who is attending the fund’s spring meeting in Washington, said the IMF was “just one of a number of forecasters” and pointed out it had been too pessimistic about the UK economy “every year since 2016, bar one.”

Hunt told reporters in Washington: “The UK is back. We are welcomed as a country which is taking tough economic decisions to get growth back on track, with a very internationalist perspective.”

He was speaking as new figures on Thursday showed the UK economy had grown by just 0.02 percent in February but had avoided dipping into recession.

Analysts had expected Britain’s GDP to grow by 0.1 percent in February, according to a consensus forecast supplied by Pantheon Macroeconomics.

But it failed to reach that figure, partly owing to strike action by civil servants and teachers.

Hunt said the IMF’s medium-term forecasts suggested Britain’s economy would grow faster than Italy, Germany, and France between 2025 and 2028 and he said they backed his economic policies.

The IMF has been giving dire growth projections for Britain for almost a year, with high energy prices and interest rates cited as factors.

The British economy was already struggling with high inflation and energy prices when Liz Truss became prime minister in September 2022 and encouraged her Chancellor, Kwasi Kwarteng, to bring in a radical tax-cutting budget that worried the City of London and led to a big jump in interest rates.

Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng during a visit to a construction site for a medical innovation campus in Birmingham, on Oct. 4, 2022. (Stefan Rousseau/PA Media)

Truss sacked Kwarteng and performed a U-turn in October 2022, scrapping most of the £43 billion worth of tax cuts, but it was not enough to save her reputation and she later resigned. She was replaced by Rishi Sunak, who she had defeated for the leadership of the Conservative Party last summer.

On Thursday the Office of National Statistics (ONS) said the UK’s consumer prices index inflation rate rose to 10.4 percent in February, despite the Bank of England’s efforts to bring it down to 2 percent.

Economic Outlook ‘Brighter Than Expected’

Hunt said, “The economic outlook is looking brighter than expected. GDP grew in the three months to February and we are set to avoid recession thanks to the steps we have taken through a massive package of cost-of-living support for families and radical reforms to boost the jobs market and business investment.”

The chancellor added: “The growth numbers show there is absolutely no room for complacency. Inflation is higher than we want, growth is lower than we want.”

“When it comes to the longer-term prospects for the economy, what I’m hearing from my finance minister colleagues here in Washington is confidence in the resilience of the British economy, a belief that we’re on the right track,” he said.

Labour’s shadow chancellor Rachel Reeves said growth was “on the floor” and added, “The reality of growth inching along is families worse off, high streets in decline, and a weaker economy that leaves us vulnerable to shocks.”

The British Chambers of Commerce (BCC), said growth remained “stubbornly low.”

David Bharier, the BCC’s head of research, said, “The government has not addressed some of the major issues holding firms back, such as the unprecedented energy price shock and record tightness in the labour market.”

A recession is generally defined in the UK as two quarters of declining GDP in a row.

GDP would need to sink below 0.6 percent in March for the economy to have shown negative growth in the latest quarter, the ONS said.

ONS Director of Economic Statistics Darren Morgan said: “The economy saw no growth in February overall. Construction grew strongly after a poor January, with increased repair work taking place.”

Morgan added: “There was also a boost from retailing, with many shops having a buoyant month. These were offset by the effects of civil service and teachers’ strike action, which impacted the public sector, and unseasonably mild weather led to falls in the use of electricity and gas.”

PA Media contributed to this report.