In this week’s briefing, we discuss the International Monetary Fund’s (IMF) upgraded growth forecast for the UK, the news that the UK has retained the top spot for financial services Foreign Direct Investment (FDI) in Europe and more.
UK Economy
UK Economy Set For Soft Landing As IMF Upgrades Growth Forecast
- The IMF has stated the UK economy is set for a “soft landing” as it upgrades its growth forecast following faster-than-expected growth in Q1 2024.
- In the upgraded forecast, the IMF says GDP is expected to grow by 0.7% in 2024 after 0.6% growth over the first quarter.
- This is up from the IMF’s previous 2024 growth prediction of 0.5%.
- The IMF’s 2025 growth forecast has stayed the same at 1.5%, as real incomes are supported by slowing inflation and easing financial conditions.
- In response to the IMF’s report, Chancellor Jeremy Hunt said: “[The report] clearly shows that independent international economists agree that the UK economy has turned a corner and is on course for a soft landing. The IMF have upgraded our growth for this year and forecast we will grow faster than any other large European country over the next six years – so it’s time to shake off some of the unjustified pessimism about our prospects.
Inflation Falls Less-Than-Expected To 2.3%
- The Office for National Statistics (ONS) has reported that UK inflation fell from 3.2% to 2.3% in April, edging closer to the Bank of England’s (BoE) target of 2%.
- Though this puts inflation at its lowest level since July 2021, the fall is smaller than expected, with City analysts having forecasted a fall to 2.1%.
- In response to the less-than-expected fall, markets have scaled back predictions of a BoE rate cut as early as June or August.
- April’s Consumer Price Index (CPI) fall was driven by easing energy and food costs, with the ONS stating that it was prevented from falling further by rising petrol and diesel prices.
- Prime Minister Rishi Sunak said the inflation figure marks “a major moment for the economy, with inflation back to normal.”
- Paula Bejarno Carbo, Economist at the National Institute of Economic and Social Research, stated that core inflation (which strips out food and energy costs) remains higher than the historical average at 3.9%, and this would likely need to fall before the Monetary Policy Committee (MPC) would be comfortable cutting interest rates.
- Carbo said: “Paired with last week’s strong wage growth data, we believe that elevated serviced inflation will remain an upwards risk to inflationary pressures in the second half of this year. As a result, the MPC may exert caution at its upcoming meeting and hold interest rates, despite [the] encouraging fall in the headline rate.”
Annual CPI And Core Inflation Rate, %
Source: ONS via Guardian
Global Economy
World Economic Forum Founder To Step Back From Executive Role
- After more than 50 years at the helm, World Economic Forum (WEF) Founder Klaus Schwab is to move away from the day-to-day management of the organisation.
- The move is part of a multi-year strategy to change the management structure of the organisation the Forum has announced, with governance shifting to a President (currently Børge Brende) and managing board.
- Schwab will transition into the role of Chairman of the board of trustees, and the Forum is yet to reveal who will succeed him to become face of their annual meeting in Davos, Switzerland.
- The WEF’s annual Davos gathering has become an important event over the years, as it aims to bring world leaders and business heads together to address important issues.
- The Forum has confirmed that the leadership change-over will be completed before the next Davos meeting in January 2025.
Investing
UK Retains Top Position For Financial Services Investment In Europe
- The UK has retained its position as the top destination for financial services FDI in Europe according to the latest EY Attractiveness Survey for Financial Services.
- The survey reports that FDI in Europe’s financial services sector rose by 13% to 329 projects in 2023.
- The UK secured the top spot in Europe with 108 projects, a 42% jump from 2022.
France ranked second place with 39 projects – a 13% decrease on the previous year – whilst Germany ranked third with 38 projects at a 23% increase on 2022.
- In 2023, the UK’s market share of financial services FDI in Europe grew to 33%, up from 26%, and the UK recorded 85 new projects in the year alone.
EY’s report found that London remained the leading European city for financial services FDI with its 81 projects in 2023, a significant 76% increase on 2022.
- Job creation from financial services FDI also increased across Europe in 2023.
Projects that disclosed headcount numbers created 12,675 jobs, and the UK led with 5,019 jobs created, a 93% increase on 2022.
- Anna Anthony, EY UK Financial Services Managing Partner, said: “The UK didn’t just maintain its lead as the most attractive European financial services market last year, it extended it significantly. Even through challenging macroeconomic conditions and geopolitical uncertainty, the stability of the UK’s financial services sector has ensured foreign investor confidence remains strong.”
A Final Note
With inflation falling close to the BoE’s 2% target and the IMF upgrading the UK’s growth forecast for the year, the past week has shone a positive light on the prospects of the UK economy amid a fluctuative period.
What’s more, the news that the UK has retained the top spot for financial services FDI in Europe has served to highlight the country’s maintained dominance in the sector and attractiveness to foreign investors - a sustained benefit of the UK private sector.
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