The UK will escape a recession this 12 months, the IMF mentioned on Tuesday, including that the nation’s financial system had been “buoyed by resilient demand within the context of declining power costs”.

However the fund cautioned that Britain risked being caught with persistent inflation except rates of interest stayed excessive for longer.

“Financial exercise has slowed considerably from final 12 months and inflation stays stubbornly excessive,” the fund mentioned, whereas including that “the outlook for progress, whereas enhancing considerably in current months, stays subdued”.

The IMF predicted earlier this 12 months that the UK financial system would shrink by 0.5 per cent between the ultimate quarter of 2022 and the ultimate quarter of this 12 months.

However, in a big improve, it mentioned the financial system was now set to increase 0.4 per cent in 2023, reflecting stronger wage progress, extra supportive fiscal coverage and a quicker easing within the world pressures of power costs and provide chain blockages.

It expects gross home product to develop 1 per cent in 2024 and to common 2 per cent in 2025 and 2026.

However the IMF warned inflation was now set to stay above the Financial institution of England’s 2 per cent goal for six months longer than it had forecast final month, till mid-2025.

“Some additional financial tightening will in all probability be wanted and charges might have to stay greater for longer,” it mentioned.

The fund warned towards “untimely celebrations”, with the chance that top power costs would get replaced by extra persistent value and wage pressures that would lead inflation to “plateau” at an elevated price.