The UK's growth forecast has been increased by the IMF due to decreased inflation and interest rates.

• The International Monetary Fund has revised its 2024 growth forecast for the UK, predicting that a decline in both inflation and interest rates will stimulate domestic demand.
• On Tuesday, the IMF reduced its growth forecast for the euro zone in 2024 from 0.9% to 0.8%, indicating that Germany, the bloc's largest economy, will experience stagnation.

The International Monetary Fund has revised its 2024 growth forecast for the UK, predicting that lower interest rates and inflation will stimulate domestic demand.

The IMF has revised its forecast for the U.K. economy's growth this year from 0.7% to 1.1%, and it has maintained its prediction for a 1.5% expansion in 2025.

The U.K.'s inflation rate in September was 1.7%, down from 11.1% in October 2022. Due to lower rates of services inflation and wage growth, economists predict that the Bank of England will cut interest rates faster, with the central bank's key rate dropping from 5.25% at the beginning of the year to 4.5% by the end of 2024.

So far this year, economic growth has been sluggish, with August's 0.2% growth following flat performance in June and July.

The IMF's optimistic forecast coincides with the upcoming delivery of the first Labour Party budget in 14 years. Prime Minister Keir Starmer has cautioned that the package will include "difficult" choices to address the predicted £22 billion ($28.5 billion) funding deficit, a figure contested by his predecessors in the Conservative Party, after Labour pledged to reduce net borrowing.

Although Starmer has ruled out increasing certain major taxes, such as income and corporation taxes, a broader package of tax hikes is expected. Despite uncertainty over the budget affecting consumer confidence readings in August, the S&P Global UK Consumer Sentiment Index released Monday showed households were slightly more optimistic about their finances and more willing to make large purchases.

Finance Minister Rachel Reeves, who took office in July, stated on Tuesday that while it's welcome that the IMF has upgraded our growth forecast for this year, there is still more work to be done. Labour has previously pledged to secure the highest sustained growth in the G7 group of nations and make higher growth the core focus of its policymaking.

The IMF reduced its 2024 growth forecast for the euro zone from 0.9% to 0.8%, predicting stagnation in Germany's economy. Analysts highlight various challenges facing Germany, including intense competition in the automotive and manufacturing sectors, higher energy costs, and macroeconomic uncertainty affecting its industrial output.

The International Monetary Fund predicts that the U.S. economy will grow by 2.8%, Canada's economy will expand by 1.3%, and Japan's economy will only grow by 0.3% in the coming year. Despite high inflation, Japan has been struggling with weak demand.