United Kingdom: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for United Kingdom

UNITEDKINGDOM IMFCountryReportNo.24/203 July2024 2024ARTICLEIVCONSULTATION—PRESSRELEASE;STAFFREPORT;ANDSTATEMENTBYTHEEXECUTIVEDIRECTORFORUNITEDKINGDOM UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2024ArticleIVconsultationwiththeUnitedKingdom,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressReleasesummarizingtheviewsoftheExecutiveBoardasexpressedduringitsJuly1,2024considerationofthestaffreportthatconcludedtheArticleIVconsultationwiththeUnitedKingdom. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonJuly1,2024,followingdiscussionsthatendedonMay21,2024,withtheofficialsoftheUnitedKingdomoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonJune14,2024. AnInformationalAnnexpreparedbytheIMFstaff. AStaffStatementupdatinginformationonrecentdevelopments. AStatementbytheExecutiveDirectorfortheUnitedKingdom.Thedocumentslistedbelowhavebeenorwillbeseparatelyreleased. SelectedIssues TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.org InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund PR24/259 IMFExecutiveBoardConcludes2024ArticleIVConsultationwiththeUnitedKingdom FORIMMEDIATERELEASE Washington,DC–July1,2024:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withtheUnitedKingdom. Theeconomyisapproachingasoftlanding,withgrowthrecoveringfasterthanexpectedafteramildtechnicalrecessionin2023.Inflationhasfallenrapidlytonear-targetfromlastyear’sdouble-digitlevels,duetothereversaloftheenergypriceshockandthedemandimpactoftightmonetarypolicy.Growthisprojectedatamodest0.7percentin2024,strengtheningto 1.5percentin2025,asdisinflationbuoysrealincomes,monetarypolicystartseasing,andfinancialconditionsbecomemoreaccommodative.Fiscalpolicyhasremainedtight,continuingtotargetmedium-termdebtstabilization,althoughthelasttwobudgetsdidincludetaxcutsaimedatboostinginvestmentandlaborsupply.Inflationisforecasttotemporarilyrisefromaround2percentpresentlyto2.5percentbyend-2024,duetoregulatedenergypricebaseeffects,beforereturningdurablyto2percentinearly2025. Longer-termgrowthprospectsremainsubdued,duetoweaklaborproductivitygrowth,populationagingandsomewhathigherthanexpectedinactivitylevelsduetolongtermillness,onlypartlyoffsetbyhighermigrationnumbers.Elevatedpressuresonpublicservices,notablyinhealth,amidstongoingindustrialactionoverpay,implyadditionalheadwinds.Anumberofwell-conceivedmeasurestoboostweakproductivityhavealsobeenimplemented,butthesewillnotbesufficienttoliftproductivitytoclosetopre-GFClevels.Post-Brexituncertaintyhascontinuedtoease,inthecontextofprogressonIrishborderarrangements,acarefulreviewofretainedEUlaws,andresilienceinUKservicesexports.However,UKfirmstradingwiththeEUarestilladaptingtothepost-Brexitarrangement. Riskstogrowthandinflationarebalanced.Intheshortterm,growthcouldbeloweriftheanticipatedpick-upinconsumptionfromcurrentweaklevelsdoesnotmaterialize,orhigherintheeventofstronger-than-expectedsecondroundeffectsfromfallingenergyprices(thisalsorepresentsadownsiderisktoinflation).Alternatively,strongerwagepressurescouldlendgreaterpersistencetoservicesinflation,withpossiblerepercussionsforgrowthasmonetarypolicyadjusts.Thekeydownsiderisktomedium-termgrowthisthatproductivityandlaborsupplydisappointrelativetoexpectations.ButboldimplementationofambitiousstructuralreformsandAIadoptionsimilarlypresentanupsiderisktogrowth. 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard. 2 ExecutiveBoardAssessment2 ExecutiveDirectorsrecognizedthattheeconomyisapproachingasoftlanding,withgrowthrecoveringafteramildtechnicalrecessionlastyearandsettoacceleratefurtherin2025,asdisinflationboostsrealincomesandfinancialconditionsease.Directorswelcomedtherapiddeclineininflationsincelastsummerduetoeasingenergyandgoodsprices,althoughnotedthatwagegrowthandservicesinflationpressuresremainelevated.Theyagreedthatriskstotheoutlookarebalanced. Directorsagreedthatwiththemonetarypolicystancereachingaturningpoint,therisksofprematureversusdelayedeasingshouldbeappropriatelybalanced.TheywelcomedtheMonetaryPolicyCommittee’smeeting-by-meetingapproachtoadjustingrates,whichremainsappropriategivenprevailinguncertainty.Pointingtotheimportanceofcommunicationofmonetarypolicydecisions,particularlyinacontextofdivergencefromthepa