IMF May Be Forced to Eat Humble Pie Over UK
The International Monetary Fund (IMF) could be forced into an embarrassing U-turn this week and upgrade growth forecasts for the U.K, analysts said on Monday.
"It seems highly likely that they will revise growth up," George Buckley, chief U.K. economist at Deutsche Bank, told CNBC on Monday.
The IMF downgraded its growth forecasts for the U.K. in April over concerns about the austerity program headed by the country's finance minister, George Osborne, sparking a war of words between the minister and the organization.
The IMF's chief economist, Oliver Blanchard, told Osborne he was "playing with fire" and should "consider adjustment to the original fiscal plans." Osborne responded by saying there was "no plan B for the U.K. economy" and that he would stick to implementing billions of pounds worth of spending cuts.
The IMF predicted the U.K. economy would grow by 0.7 percent this year and by 1.5 percent in 2014 – cutting both forecasts by 0.3 percentage points.
(Read More: IMF Deals Blow to UK's Growth Optimism)
Buckley told CNBC that current growth predictions and better-than-expected economic data from the U.K. now made this figure look improbable. "The quarter-on-quarter growth rate that you'd need to assume if they didn't [revise the forecast] is quite low - less than 0.3 percent per quarter for second, third and fourth quarter," he added.
A spokesperson at the IMF was not immediately available.
Since the IMF revised the U.K.'s growth forecasts earlier this year, the economy has done better than expected. The U.K. recorded growth of 0.3 percent in the first quarter of 2013 and economists and the Bank of England forecast growth of around 0.5 percent or 0.6 percent for the second quarter. The preliminary data is released on July 25.
"Current forecasts from the IMF, OECD and OBR are suddenly starting to look overly pessimistic," Markit's chief economist Chris Williamson told CNBC. "Especially as survey gauges of order books suggest that robust growth momentum will have been carried over into the third quarter."
"Business confidence has picked up markedly since the lows of late last year and consumer sentiment is also running at its highest for three years, providing a broad-based platform for reasonably robust economic growth. Forecasts of 1 percent growth are now looking more realistic," Williamson added.
Chris Scicluna, chief economist at Daiwa Capital Markets said he entirely agreed with the expectations of a revision by the IMF. "The data has been firmer than expected. The first quarter was stronger than expected and second quarter growth will be around 0.6 percent or even stronger. The IMF will change its forecasts to reflect this," he added.
Buckley said the IMF could lift its growth forecast for the U.K. this year from 0.7 percent to as much as 1 percent. Howard Archer, chief European and U.K. economist at IHS Global Insight, told CNBC that growth could be even stronger this year.
(Read More: No Triple-Dip: UK Economy Fears Ease)
"There has been a recent stream of improved data and surveys for the U.K. economy across a wide range of sectors of the economy. As a result, we have further upgraded our U.K. GDP forecasts modestly to 1.1 percent (from 1.0 percent) in 2013 and to 1.8 percent (from 1.6 percent) in 2014," he said.
The improvements in data across a range of sectors, from manufacturing expansion to buoyant U.K. consumer confidence, reinforced hopes that the U.K. economy was moving onto a firmer footing, he said.
(Read More: UK Bank Business 'Normal' for First Time Since 2011)
"It is encouraging to note though that this is the third month running that we have raised our GDP growth forecasts," Archer noted, "which is in happy contrast to the repeated downward revisions of recent years."
Daiwa's Scicluna said that the opportunity to crow about a revision by the IMF would not be lost on George Osborne. "It's quite fortuitous for him. I'm sure he will present it as a triumph but GDP is still almost 4 percent down from its peak before the crisis. We're a long way from a boom."
(Read More: UK Economy: Pre-Crisis Levels to Remain Elusive)
The U.K. could be one of the few countries bucking a downward economic trend after the head of the IMF hinted that the IMF could trim global growth forecasts when it publishes its "World Economic Outlook" on Tuesday.
"We had a growth forecast of about 3.3 per cent," Christine Lagarde said, referring to the fund's forecast for 2013. "But I fear that considering what we are seeing now in emerging countries in particular - not developing countries and low-income countries but emerging countries - I fear that we might be slightly below that," she told a conference in France, Reuters reported.
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt