Britain will outperform Germany this year, according to the International Monetary Fund, after the agency’s worst fears for the UK economy didn’t come to pass.

The IMF expects the UK economy to grow by 0.4pc this year, it said on Tuesday, confirming predictions published in May as part of its annual economic healthcheck.

This represents a big upgrade compared with the 0.3pc contraction it predicted in April, when the UK was forecast to be the worst performing major economy in the world including Russia.

The Fund said the UK’s improvement reflected “stronger-than-expected consumption and investment from the confidence effects of falling energy prices”.

Separately, the Windsor Framework agreement announced by Rishi Sunak in February has helped trade between Northern Ireland and Great Britain thanks to “lower post-Brexit uncertainty”.

Britain’s financial sector has also remained “resilient” following the collapse of Silicon Valley Bank in the US and Credit Suisse in Switzerland.

Meanwhile, Germany’s economy is now expected to shrink by 0.3pc this year in a blow to Chancellor Olaf Scholz, who insisted earlier this year that Germany will avoid a contraction.

The IMF blamed “weakness in manufacturing output” for its decision to downgrade its forecast from a previous prediction of a 0.1pc contraction.

Separate survey data published by Germany’s Ifo institute showed business confidence deteriorated in July for the third month in a row. Analysts warned that the German economy will struggle to break free from recession this year. 

The economy has contracted for the past two quarters – meeting the technical definition of recession.