The Bank of England recently announced a further increase in the base interest rate (Picture: Getty Images)

The UK is no longer expected to go into recession in 2023, the International Monetary Fund (IMF) has said, after an update to its forecasts.

In April, the financial body predicted the British economy would contract by 0.3% this year.

But it now believes output will grow by 0.4%, crediting ‘higher-than-expected resilience’ in both supply and demand.

In its latest report, the IMF said: ‘Buoyed by resilient demand in the context of declining energy prices, the UK economy is expected to avoid a recession and maintain positive growth in 2023.’

No changes were made to the organisation’s forecast for 1% growth in the UK economy next year.

Chancellor Jeremy Hunt said the ‘big upgrade’ from the IMF was a result of the government’s moves ‘to restore stability and tame inflation’.

He said: ‘It praises our childcare reforms, the Windsor Framework and business investment incentives.

‘If we stick to the plan, the IMF confirm our long-term growth prospects are stronger than in Germany, France and Italy – but the job is not done yet.’

Chancellor Jeremy Hunt welcomed the review’s new forecast for the UK economy (Picture: Reuters)

The Washington-based body’s annual Article IV review makes several suggestions for the government, including ‘fine-tuning the immigration system to alleviate sectoral and skilled labour shortages and enhance labour market flexibility’.

It points positively to the Northern Ireland Protocol deal reached by the UK and EU, saying the ‘more measured approach for retained EU laws’ is helpful for businesses.

However, the report also highlights reforms that the IMF believes are required for the country to reach its ‘full growth potential’, including ‘addressing the post-pandemic rise in labor inactivity, mainly due to long-term illness’.

Interest rates may have to ‘remain high for longer’, it said, if inflation is to be tackled ‘more assuredly’.

The Bank of England increased the base interest rate to 4.5% earlier this month, the 12th rise in a row since rates started going up in December 2021.

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The IMF’s report credits ‘resilient demand in the context of declining energy prices’.