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IMF upgrades UK growth for 2nd time this year

The International Monetary Fund (IMF) upped its forecast for U.K. growth on Tuesday to 2.9 percent this year—its second upgrade to the country's outlook in 2014.

Simon Dawson | Bloomberg via Getty Images

The IMF upgrade for the U.K. -- which coincided with the publication of two other upbeat economic indicators for the country -- was part of its biannual World Economic Outlook report. It came come just weeks after the U.K. Chancellor of the Exchequer George Osborne upgraded his own outlook. He forecast gross domestic product (GDP) would accelerate by 2.7 percent this year, after growth of 1.7 percent in 2013.

At a news conference to accompany the report, IMF Chief Economist Olivier Blanchard said the pan-governmental organization had "clearly under-forecast" U.K. growth previously.

"It is fair to say our forecast was too pessimistic, and indeed growth has been much stronger than we had forecast," Blanchard told journalists on Tuesday.

"In the case we clearly under-forecast," he added. "The fact that consumption increased was good news… I think looking forward, investment is coming back and growth is going to be more balanced."

Read MoreCNBC explains: IMF

In addition to the IMF report and conference, two positive indicators on the U.K. economy were published on Tuesday.

First, official figures showed U.K. manufacturing grew more than forecast in February. The sector grew by 1.0 percent on January—its third consecutive monthly rise—and 3.8 percent on the year.

Economists polled by Reuters had expected a month-on-month rise of 0.3 percent and a 3.1 percent increase for the year.

Second, a quarterly survey by the British Chambers of Commerce showed business confidence hit an all-time high in the first three months of this year. Responses from 7,479 businesses expressed confidence across six key indicators, including employment expectations and domestic orders.

Read MoreUK recovery 'real' but rate hike uncertainty looms

"It is hard to find any negative signs for the U.K. economy," Robert Wood, the chief U.K. economist of Berenberg, told CNBC on Tuesday.

He noted that the uptick was evolving from consumption-led to becoming more broad-based.

"What we have had so far is a consumption-led recovery. We have had consumers dipping into their pockets; that is quite normal for a U.K. cyclical upturn. We are now seeing businesses investing more…. And now also some signs on the services side that exports are picking up, which is really important, given that enormous balance of payments deficit," Wood said.

The IMF's upgrade of the U.K. is its second this year. In January, the pan-governmental organization upped its forecast for U.K. growth to 2.4 percent for this year and 2.2 percent for next. It also increased its outlook for global growth to 3.7 percent for 2014.

This second upgrade will be viewed as a coup by Osborne, who has previously clashed with the IMF over his austerity policies aimed at cutting the country's deficit. Back in 2013, Blanchard said Osborne was "playing with fire" and impeding the U.K.'s ability to grow its way out of the 2007-08 global financial crisis.

However, the IMF appeared to U-turn on Tuesday, attributing the U.K. improving outlook in part to its economic policies.

"The turnaround in the economy is a reflection of the fact that monetary policy has worked, in conjunction with great foreign investor interest," said Thomas Helbling, the head of world economic studies at the IMF's research department, at the conference.

The upturn in the U.K.'s economic fortunes has been reflected in the financial markets. For instance, sterling has risen steadily since July last year, gaining 13 percent to trade at $1.6711 on Tuesday, after hitting a low of $1.4843.

The U.K. benchmark FTSE 100 index has also gained over the same period, albeit less impressively. The index has gained 6 percent to trade at 6584.90 points on Tuesday, after hitting a low of 6203.44 in June 2013.

Nonetheless, the U.K. revival has not stopped the IMF from inciting other economies to encourage growth rather than implement austerity measures.

This month, IMF Managing Director Christine Lagarde called on the euro zone to loosen monetary policy in order to combat disinflation.

"More monetary easing, including through unconventional measures, is needed in the euro area to raise the prospects of achieving the European Central Bank's price stability objective," Lagarde told an audience in Washington DC .

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