MAGGIE PAGANO: The IMF’s gloomy forecasts for Great Britain should be viewed with caution
If you didn’t know better, you might suspect that the International Monetary Fund has a particular antipathy towards Britain.
In its latest quarterly report, the finance agency cut its forecast for the UK next year to 0.6 percent, the weakest economic growth in the G7.
Their previous forecast of 1 percent for 2024 was incorrect because interest rates would have to remain high due to ongoing inflation.
But here’s the thing. In this forecast, the IMF assumes an interest rate of 6 percent instead of the current 5.25 percent and recognizes this as outdated.
This is deeply flawed to say the least, as the Bank of England suspended interest rates last month at its MPC meeting on September 21 after inflation fell more than expected.
Gloomy 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 G7 countries
Since then, most commentators have suggested that interest rates may well have peaked.
In a worst-case scenario, the bank could raise rates as high as 5.5 percent, but only a handful of pessimists are suggesting 6 percent. Including the IMF. How strange is that?
Here’s another bizarre caveat from the IMF, included in the report’s notes index: “The UK forecasts do not take into account the significant statistical upward revisions to GDP for 2020 and 2021 forecast on September 1, 2023.”
On this day, the Office for National Statistics updated its 2021 growth figures after new data showed the post-pandemic recovery was 0.6 percent above pre-Covid levels, rather than 1.2 percent lower.
Even more bizarrely, the IMF confirmed that it “locked” its report on September 26th.
But that was almost a week after the MPC held rates and almost three weeks after the ONS update.
Is there no internet in Washington? Or are the economists at the IMF simply lazy? Or do they enjoy denigrating Britain so much that they don’t bother updating the report?
Who knows, but it’s hard to believe that such a supposedly reputable international organization could be so biased.
And yet his jokes keep making mistakes. In the last seven years, the IMF has gotten two forecasts right. In April it predicted that the UK would be in recession.
Still, the IMF managed to squeeze in a little bit of good news. GDP will be 0.5 percent higher this year than before at 0.4 percent. I bet they’re wrong again.
However, the IMF’s mistakes cannot obscure the facts. Growth is sluggish – the direct result and goal of higher interest rates.
Still, the UK will have grown faster than most of Europe in the three years to 2024.
So the UK is not an outlier – all of Western Europe is suffering from depressingly low growth.
This latest mishap is a salutary reminder: forecasting is often little better than reading leaves in a teacup. They should be taken not just with a pinch of salt, but with truckloads of it. Followed by an IMF news blackout.
It is surprising how calm financial markets are amid the horror of the deadly war between Israel and Hamas and the possibility of an escalation of conflict across the region.
The main impacts were due to oil prices, gold prices and the inevitable rise in defense stocks. Otherwise, the major indices appeared to have dismissed the dangers of a much larger geopolitical conflict.
It could be that markets are already so worried about rising bond yields in the US, Germany and the UK due to rising interest rates that they can no longer cope with further shocks.
Yields on 10-year US Treasury bonds are at levels not seen in 16 years.
The rises, sparked by worries about the gigantic U.S. deficit and the Federal Reserve’s quantitative tightening policies, have pushed the CBOE Volatility Index – the Vix fear indicator – to levels not seen since 2007. The calm before the storm.
Love is blind
Nobody should be surprised by Mark Carney’s love affair with Labor and his uncanny support for shadow chancellor Rachel Reeves.
The former governor of the Bank of England always backed the wrong horse – forward guidance, Project Fear before Brexit, QE and interest rates that were too low for too long.
But we can’t blame Carney alone. Former Chancellor George Osborne is to blame for this, as he was obviously infatuated with the Canadian.
Still, there was an obvious domestic competitor right before him – former bank economist Andy Haldane – who would have raised rates sooner and faster.