UK the fastest growing economy in the G7 this year?

According to the latest World Economic Outlook forecast from the International Monetary Fund (IMF), the UK looks set to be the fastest growing major economy this year. Inflation has stabilised, unemployment is down, and consumer confidence is up, keeping the UK on track to post its strongest growth since 2007.

The IMF now expects the UK to grow by 2.9% this year, up from its forecast of 2.4% in January and 1.9% last October. By way of comparison, the IMF sees the US growing to 2.8% in 2014, Canada by 2.3% and the Euro area by 1.2%.  

This is the first time since April 2008 that Britain has led the G7 in terms of growth, and the IMF stated that output could actually be even higher this year because increased confidence had "created stronger-than expected growth momentum". The IMF also upgraded its UK growth forecast for 2015 to 2.5%, increased from a projection of 2.2% in January.

It should be remembered that Olivier Blanchard, the chief economist of the IMF, famously singled out the UK for criticism in April 2013 and said Chancellor George Osborne was "playing with fire" with his austerity programme. He predicted forecast growth of 1.5% for this year and also that unemployment would remain high at 7.8%. Unemployment is now projected to fall to 6.9% this year.

In fact, the IMF forecast is relatively upbeat for the world in general as well as the UK in particular. Overall, the IMF says the global economy strengthened at the end of 2013, whilst it forecasts global growth of 3.6% this year and 3.9% in 2015. This is a little down on the 3.7% projected three months ago.

However, it sees risks in emerging markets and warns of low inflation in advanced economies and geopolitical issues. Again, the IMF believes that the UK is better placed to weather any problems in emerging markets than the Euro area, Japan, or the US, despite its relatively large exposure to these economies.

It calculated that a 1% drop in GDP growth of emerging market economies would reduce UK output by 0.15%, compared with a 0.5% decline in Japan, where the impact would be greatest.

An interesting warning also came from the IMF, which talks of the dangers of excessively low inflation. Whilst beleaguered UK savers may not see it that way, falling prices or deflation can be very damaging. At the moment, this is not affecting very many countries but it is a potential threat on the economic horizon.

Elsewhere, the National Institute of Economic and Social Research (NIESR) declared that UK growth in the first quarter of 2014 had been "robust", and estimated growth of 0.9% for the three months ending in March.

However, NIESR cautioned that the UK economic recovery was "in its infancy". It also stated that it did not expect the Bank of England to raise interest rates until the middle of 2015.

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