This is down from the IMFs previous prediction of 2% made last November which was followed by fourth quarter 2010 contraction of 0.5% and a first quarter growth of 0.5% in 2011.
The IMFs verdict reinforces Chancellor of the Exchequer George Osborne’s position which came under attack over the weekend from economists and academics that criticised Osborne for having no Plan B.
After the announcement Osborne made a statement reiterating that his fiscal policies brought “confidence and stability”.
The IMF verdict outlines the question of whether it was time to adjust macroeconomic policies to which it replied: “The answer is no as the deviations are largely temporary. Strong fiscal consolidation is underway and remains essential to achieve a more sustainable budgetary position, thus reducing fiscal risks.
“The current settings of fiscal and monetary policy remain appropriate in the central scenario.”
John Lipsky, deputy director of the IMF, said: “We’re pleased the UK is showing global leadership on economy.”
The verdict also stated that the UK economy is expected to grow at a moderate pace in 2011 predicted real GDP growth to remain at 1.5% before accelerating gradually to around 2.5% over the medium term. The lower value was attributed to impaired consumer confidence, spiking commodity prices, headwinds from necessary fiscal consolidation and a soft housing market.
Among the predictions made in the IMFs statement, inflation was said to likely remain above 4% formost of 2011 but then gradually return near the 2% target as transitory factors dissipate.
The biggest concerns the IMF had over the UK economy is the unacceptably high levels of unemployment and the significant risks to inflation and growth.
