Last year the IMF chastised the British government for following an austerity policy and urged the government to change course. As far as I am aware, they did not. One credit rating agency, Fitch, downgraded the UK’s credit rating from AAA to AA+ citing a “weakened economic outlook”.
This week the IMF will upgrade the UK’s growth forecast to 2.4% for 2014, making it one of the fastest growing Western economies. The Bank of England and the Office for Budget Responsibility are also set to upgrade their growth forecasts, too. Unemployment has been steadily but slowly falling for the last six months. Inflation has just met the Bank of England’s 2% target for the first time since 2009. A slim majority of Britons (52% to 47%) now feel confident about the economy. All sectors of the economy, from services to construction to manufacturing are now firmly in growth mode, if you believe PMI reports.
As far as I can see, in terms of policy, not much has changed in how the coalition has been governing for the past few years. Europe, our largest export market, is still a basket case. Without wishing to overstate the economic outlook, compared to a few years ago when it seemed that the entire banking system may collapse, the economic outlook for Britain now looks decidedly more rosy. That said, what explains the turnaround in the outlook of the British economy?