On behalf of the UK authorities, we thank the IMF staff team for insightful policy discussions during the Article IV mission held May 7–21, and their comprehensive and useful report. The authorities used the mission to express appreciation for their longstanding, cooperative engagement with the Fund. The UK entered a pre-election period shortly after, with elections to be held on July 4.

Emerging data for 2024 points to a strengthening outlook for the UK economy. The successive global shocks of Covid-19 and Russia’s unprovoked and illegal invasion of Ukraine slowed growth and pushed inflation to a peak of 11%. 2023 growth was 0.1%, with output falling in the second half of the year. Growth has picked up in 2024, with Q1 GDP growing by 0.6% quarter-on-quarter, with strengthened output in services and manufacturing.

Consumer Prices Index (CPI) inflation returned to the 2% target in May, although the Bank of England expect it to rise slightly later this year as last year’s declines in energy prices fall out of the annual comparison. In their June meeting, the Monetary Policy Committee held Bank Rate at 5.25%. They noted a restrictive stance remains necessary to ensure that CPI inflation returns to target sustainably in the medium-term. At present, indicators of inflation persistence remain elevated, although they continue to moderate. For example, services consumer price inflation fell from 6.0% in March to 5.7% in May, and evidence remains of some labor market tightness.

The Bank of England recognizes the importance of effective communications, which was one of the drivers for requesting the Bernanke Review. The Review provides a careful and thorough assessment of the Bank’s forecasting methods and the relationship between forecasts, monetary policy decisions and their communication. Considerable new investment in data and forecasting infrastructure is already underway. Dr Bernanke’s other recommendations are wide ranging and interconnected, so the Bank is currently considering implementation options in depth and will provide an update on proposed changes by the end of the year. They appreciate staff’s suggestions in this regard.

Staff’s report notes that fiscal policy has remained restrictive, supporting disinflation. The authorities remain committed to fiscal responsibility. The primary deficit decreased from 3.6% of GDP in FY22 to 1.3% in FY24, and gross debt-to-GDP was second lowest in the G7 in FY23. The authorities are also committed to supporting long-term growth. In March 2024, the Chancellor of the Exchequer delivered a Budget with measures on both taxation and expenditure, based on forecasts by the independent Office for Budget Responsibility which confirmed that the government is on track to meet both its debt and borrowing fiscal rules.¹ As is standard practice, further decisions about spending plans across the public sector will be made in a Spending Review, to be held later this year.

The UK financial sector has shown resilience over recent years, and the authorities continue to develop cutting-edge mechanisms for understanding and ensuring the resilience of non-bank financial institutions (NBFIs). The UK banking system is well capitalized and in a strong position to support households and businesses, even if economic and financial conditions are substantially worse than expected. The Financial Policy Committee continues to maintain the countercyclical capital buffer (CCyB) at its neutral setting of 2%, helping to ensure that banks continue to have capacity to absorb unexpected future shocks without restricting lending in a counterproductive way. NBFIs play an important role in channeling finance to the UK real economy, and important steps are being taken to minimize data gaps for surveillance and ensure resilience in the sector. The authorities appreciate staff’s support for the System-Wide Exploratory Scenario² exercise, as well as the NBFI lending tool³ which will act as a backstop in periods of market dysfunction by providing liquidity to NBFIs in the gilt market. Given the cross-jurisdictional nature of the NBFI sector, domestic efforts are complemented by global efforts including bilateral cooperation and work at the FSB.

Authorities agreed on the importance of staying the course on climate policy, maintaining the UK’s status as a global climate leader. The UK has a strong legal framework in place for reaching net zero emissions by 2050. This includes requirements on government to set legally binding five-year caps on emissions, known as ‘carbon budgets’, and to publish reports setting out proposals and policies for meeting those budgets. The UK has successfully delivered all three carbon budgets so far, over-delivering on the 2018–22 carbon budget by 15%, and is on track to deliver the next carbon budget covering 2023–27. In 2022, the UK became the first major economy to halve its emissions compared to 1990 levels. Leveraging private sector investment remains an important part of the authorities’ strategy – since 2010, the UK has mobilized £300 billion in investment in low carbon technologies. The authorities stated during the mission that they remain committed to delivery of net zero by 2050 in line with the UK’s world-leading legislation.

The UK remains a committed supporter of multilateralism, seeing it as a critical means by which to preserve the health of the global economy and address shared challenges. The UK seeks to play a constructive role in the global economic system, including the IMF, World Bank, G20, and WTO. In recognition of the IMF’s role at the center of the global financial safety net, we remain closely engaged across the Fund’s work on surveillance, lending and capacity development, including through provision of UK financial resources and expertise. In May, the UK secured legislative approval for increasing its IMF quota under the 16^th General Review of Quotas. The UK provides significant support to the Poverty Reduction and Growth Trust and to the Resilience and Sustainability Trust, and we fully support efforts to deliver a bigger and self-sustaining PRGT in parallel to an ambitious IDA21 replenishment. As a key jurisdiction for sovereign debt issuance, the UK also participates in the Global Sovereign Debt Roundtable, supporting efforts to facilitate common understanding of restructuring issues amongst a diverse set of stakeholders.