The International Monetary Fund (IMF) has upgraded its forecast for the UK economy in 2018, but warned about the level of debt in the global economy.
The organisation said it now expects the UK economy to grow by 1.6 per cent this year, slightly higher than the 1.5 per cent it had previously forecast.
However this figure is significantly lower than the one currently being used by Theresa May's government.
The Office for Budget Responsibility (OBR), the official organisation created by the UK government to forecast developments in the economy, expects the country to grow by 2 per cent this year.
Richard Buxton, chief executive of Old Mutual Global Investors, and UK focused fund manager Neil Woodford both believe the British economy will grow by closer to 2 per cent this year.
Mr Buxton cited the falling rate of inflation and greater level of certainty around the Brexit negotiations as reasons for his renewed optimism on the UK economy.
The IMF expects the global economy to grow at a rate of 3.9 per cent this year and next, due to the continued loose monetary policy in most of the world, US tax cuts and higher commodity prices.
Mr Buxton said the key positive for the global economy is that US companies will pay less tax, freeing up capital for investment in the wider economy, creating what the economist John Maynard Keynes called the multiplier effect, whereby an initial stimulus percolates through the economy generating incremental economic growth.
Elsewhere in its World Economic Outlook report, published today (19 April), the IMF warned global debt levels will need to be addressed soon as the level of debt, when compared with the level of global GDP, is, according to their calculations, is at an all-time high.
The IMF expressed concern about the level of debt in the world, and said much of the growth in debt has come from China.
This is a view Mr Woodford has previously expressed, and said the ending of the credit expansion in China will have a massively negative effect on global economic growth.
But he is less concerned about the level of debt in the UK. He said the increase in debt in the UK is actually only taking the overall level back towards the historic average. In addition he said the fact consumers and businesses have the confidence to borrow is a positive sign for the economy.
The aim of the policy of low interest rates and quantitative easing is to force the yields on cash and bonds downwards, to encourage borrowing.
Many companies and consumers will have taken advantage of the low rates to borrow for the long-term.
If the IMF assessment of the overall level of economic activity is valid, inflation would be expected to rise, reducing in real terms the value of historic debt.
The IMF urged global governments to “fix the roof while the sun is shining” and address the debt issue.
David Jane, who jointly runs about £880m across a range of four multi-asset funds at Miton, sounded a positive note.
“If you look through the near term noise, what do you see? Economic growth is strong, although less so possibly in Europe than before, and inflation is not accelerating to a worrying degree, which means rate rises will continue at a steady, but not uncomfortable, pace.
"Company earnings growth is strong, making valuations more reasonable than previously thought. Real interest rates also remain very low or negative and the yield curve still slopes upwards suggesting the bond market regards the outlook as benign.”
But David Scott, an adviser at intermediary firm Andrews Gwynne in Leeds said the present debt levels in the world are a “dark cloud” hanging over investors.
He said “2008 [the global financial crisis} is just a dress rehearsal for the big one that is to come.”
His response to this is to have many client portfolios holding 40 per cent in cash.
David.Thorpe@ft.com
