IMF raises growth forecast for Britain as recovery proceeds

Britain got a double boost yesterday as its recovery from recession gathered more momentum and the IMF raised the country’s growth forecasts by more than for any other major economy.

Factories expanded production far more quickly than expected in February, UK statistics office data showed. Separate surveys showed a strong first quarter for companies and a long-awaited pick-up in wages.

The signs that Britain is finally starting to put the financial crisis behind it are well-timed for finance minister George Osborne. He visits the IMF this week, a year after the IMF urged him in vain to tone down his austerity programme to get growth going again. For the second time in six months, the IMF sharply raised its forecasts for growth, which it now sees hitting 2.9% in 2014 before easing to 2.5% next year. That was up from previous forecasts of 2.4% and 2.2%.

However, Britain’s economy is only expected to get back to its pre-crisis size in the second quarter of this year, significantly lagging other economies like the US and Germany.

With the recovery still in its early days, Bank of England policymakers, who meet this week, are in no rush to raise interest rates from their record low of 0.5%, especially with inflation subdued. The bank has signalled the second quarter of next year as the most likely time for a hike.

There were other signs of strength. A survey by the British Chambers of Commerce showed six key manufacturing balances, including investment plans, hit all-time highs in the first quarter and services were strong too with exports at a record high.

A second survey showed British employers are raising the salaries for new permanent staff at the fastest rate in nearly seven years as they struggle to fill vacancies.

- Reuters