The UK economy will have the worst performance of all the advanced nations this year as the cost of living crisis hits households hard. The warning has come from the International Monetary Foundation (IMF) as Britain looks set to suffer more than most from soaring inflation and higher interest rates.
In its latest World Economic Outlook update, the IMF downgraded its UK gross domestic product (GDP) forecast once again, predicting a contraction of 0.6 percent against the 0.3 percent growth pencilled in last October
But it wasn’t all doom and gloom – it nudged up its outlook for UK growth in 2024 to 0.9 percent, up from the 0.6 percent expansion previously forecast.
The grim outlook for the year ahead puts the UK far behind its counterparts in the G7 group of advanced nations and the only country – across advanced and emerging economies – expected by the IMF to suffer a year of declining GDP.
Among the other G7 nations, the IMF’s 2023 GDP predictions show growth of 1.4 percent in the United States, 0.1 percent in Germany, 0.7 percent in France, 0.6 percent in Italy, 1.8 percent in Japan and 1.5 percent in Canada.
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It comes against a backdrop of public sector strikes over pay and predictions the UK is heading for a recession, with inflation still hovering at more than 10 percent.
The IMF said Britain’s predicted GDP fall reflects “tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets”.
It follows efforts by Chancellor Jeremy Hunt last week to talk up the UK economy and its growth prospects in his first major speech in the post, declaring that “declinism about Britain was wrong in the past and it is wrong today”.
However, the IMF offered a chink of light in the otherwise gloomy economic update, predicting that the global slowdown will be shallower than first feared.
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It upgraded its global growth forecast, to 2.9 percent in 2023 from the 2.7 percent predicted in October as it said the reopening of China after strict Covid restrictions has “paved the way for a faster-than-expected recovery”.
The IMF also said it believes global inflation has passed its peak and will fall from 8.8 last year to 6.6 percent in 2023 and 4.3 percent in 2024 as interest rate hikes by central banks begin to cool demand and slow price rises.
But it warned that, in the UK and Europe, surging prices and the impact of action taken to rein in inflation, will continue to weigh on the economy.
It said: “Consumer confidence and business sentiment have worsened.”
His plans were welcomed by Dr Mohammad Mahbubur Rahman, Lecturer in Economics, University of Salford Business School, who said: “I agree with Jeremy Hunt’s view about the overall tax cuts.
“As we know, tax cuts create/increase a government budget deficit, which usually causes economic growth to fall if the government sector is significantly large.
“However, the government can consider revising the tax structure. On the other hand, how the government plans to cut the inflation rate in the short run is unclear.
If the plan is to increase the interest rate further, that might create extra pressure on the already high mortgage rate and, thus, the cost of living.”