IMF ups UK growth forecast

By Matt Falloon

LONDON (Reuters) - The International Monetary Fund raised its economic growth forecasts for Britain for 2008 and 2009 on Friday, seeing no room for interest rate cuts in the near future and even suggesting rates may need to rise.

The IMF said the British economy needed to slow to help contain inflation. It forecast average growth of 1.75 percent this year and next, up from an earlier forecast of 1.6 percent growth in each year.

"The slowdown in 2008 will be followed by a gradual rebound that gathers pace over the course of the following year," the IMF said in its latest report on the UK economy.

The upgrade will provide some relief to embattled Prime Minister Gordon Brown, whose Labour Party is reeling from heavy defeats in a by-election on Thursday and local elections at the start of May. Many voters cited concerns about the economy.

Although there were downside risks to the economy, the IMF indicated it was concerned about the possibility of rising pay settlements.

"We see no scope for further near-term monetary easing, absent assurances of continued wage moderation, fiscal policy that is tighter than planned, or signs that house price or credit developments are significantly curbing domestic demand," the IMF said.

"Given the risks ..., monetary policy should stand ready to tighten at the earliest clear signs of emergent nominal wage inflation," it said.

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