MAGGIE PAGANO: IMF’s gloomy predictions for the UK should be taken with more than a pinch of salt
You might suspect, if you didn’t know better, that the International Monetary Fund has a special animosity toward Britain.
In its latest quarterly report, the financial agency cut its forecast for the UK for next year to 0.6 percent, the weakest economic growth in the entire G7.
His previous forecast of 1% for 2024 is wrong, he says, because interest rates will have to remain high due to persistent inflation.
But here’s the thing. The IMF bases this forecast on interest rates of 6 percent instead of the current 5.25 percent, and accepts that it is outdated.
This is, to say the least, deeply erroneous, as the Bank of England suspended rates last month at its MPC meeting on 21 September following a sharper-than-expected fall in inflation.
Grim outlook: In its latest quarterly report, the IMF cut its forecast for the UK next year to 0.6%, the weakest economic growth in the entire G7.
Since then, most commentators consider that interest rates may well have peaked.
In the worst case scenario, the Bank could raise rates to 5.5 percent, but only a handful of pessimists propose 6 percent. Including the IMF. How strange is that?
Here’s another strange warning issued by the IMF, which is included in the report’s index notes: “The UK projections do not incorporate the significant upward statistical revisions to 2020 and 2021 GDP that were anticipated on September 1, 2023 “.
That’s the date the Office for National Statistics updated its 2021 growth figures following new data showing the post-pandemic recovery was 0.6 per cent higher than pre-Covid levels instead of 1.2 per cent. lower cent.
What’s even stranger is that the IMF confirms that it “blocked” its September 26 report.
But that was almost a week after the MPC left rates in place and almost three weeks after the ONS update.
Don’t they have internet in Washington? Or are IMF economists just lazy? Or do they like criticizing the UK so much that they don’t bother updating the report?
Who knows, but it’s hard to believe that such a supposedly respectable international organization could be so partisan.
However, its experts continue to misunderstand each other. In the last seven years, the IMF was right in two forecasts. In April, he predicted the UK would be in recession.
Still, the IMF managed to include a bit of good news. GDP this year will be higher, 0.5 percent, up from 0.4 percent. I bet they’re wrong again.
However, the IMF’s errors cannot hide the facts. Growth is slow, a direct and targeted result of higher interest rates.
Still, in the three years to 2024, the UK will have grown faster than most of Europe.
So the UK is not an outlier: all of Western Europe is suffering from depressingly low growth.
This latest mishap is a salutary reminder: forecasts are often little better than reading the leaves in a cup of tea. They should be taken not just with a pinch of salt, but with a couple truckloads of salt. Followed by an IMF information blackout.
It is surprising how calm financial markets are considering the horror of the deadly war between Israel and Hamas, and the potential for the conflict to escalate across the region.
The main impact has been on oil prices, gold and the inevitable rise in defense stocks. The major indices otherwise appeared to have ignored the dangers of a much broader geopolitical conflict.
It could be that markets are already so worried about rising bond yields in the US, Germany and the UK due to higher interest rates that they cannot absorb any further shocks.
US 10-year Treasury yields are at levels not seen in 16 years.
The rises, sparked by concerns about the massive US deficit and the Federal Reserve’s quantitative tightening policy, have pushed up the CBOE volatility index – the Vix fear gauge – to levels not seen since 2007. The calm before the storm.
Love is blind
No one should be surprised by Mark Carney’s love affair with the Labor Party and his lurid endorsement of shadow chancellor Rachel Reeves.
The former Bank of England governor was always backing the wrong horse: forward guidance, Project Fear before Brexit, quantitative easing and keeping interest rates too low for too long.
But we can’t just blame Carney. The blame lies with former chancellor George Osborne, obviously in love with the Canadian.
However, there was an obvious local contender – former Bank economist Andy Haldane – right in front of him, someone who would have raised rates earlier and faster.