The GDP of the U.K. will decrease by 0.6% in 2023, doing worse than that of other advanced economies, including Russia
The International Monetary Fund (IMF) has said that the United Kingdom (U.K.) economy will contract by 0.6% in 2023 and perform worse than other advanced economies, including Russia.
The U.K. is expected to be the only country to shrink next year across all the advanced and emerging economies. Even sanctions-hit Russia is now forecast to grow this year.
The IMF said that the cost of living will continue to hit the households. The IMF said its new forecast reflected the U.K.’s high energy prices and factors such as high inflation. The Chancellor to the Exchequer – Jeremy Hunt said the U.K. outperformed many forecasts last year.
Speaking on the occasion, Hunt said, “Short-term challenges should not obscure our long-term prospects – the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”
The Chief Economist of IMF – Pierre-Olivier Gourinchas said that this year’s forecast reflected the U.K.’s high dependence on liquid natural gas and that employment was still below pre-pandemic levels. He added that the plans outlined by the Treasury in the months since the Autumn Statement showed the U.K. was certainly trying to carefully navigate these different challenges and that he thinks the U.K. is now on the right track. The IMF expects the U.K. to grow in 2024, revising up its forecast to 0.9% from 0.6%.
The Director of the Institute for Fiscal Studies – Paul Johnson said that the IMF’s forecasts are not always right. Forecasts from the Bank of England are due later this week and are likely to be more positive than they were 2-3 months ago.
Paul said, “My best guess is that the economy will be broadly stagnant this year. That we’re not going to get much in the way of growth but we’re not going to have a deep recession either.”
He further said, “Now that’s not great, particularly as we should be bouncing back more strongly from Covid and particularly as we’ve not been growing terribly well for the last decade and more.”
The IMF attributes its downbeat forecast to rapid interest rate rises, tax rises, higher borrowing costs for businesses and continued high domestic energy prices. Prior to this, Hunt warned it was that there would be room for any significant tax cuts in the Spring Budget. He suggested that lowering inflation is the best tax cut right now.
The Prime Minister of the U.K. – Rishi Sunak has pledged to halve inflation by the end of the year, but many expect this to happen anyway largely due to a slowdown in energy price rises and as post-pandemic supply problems ease. The Government’s official independent forecaster the Office for Budget Responsibility (OBR) expects inflation to fall to 3.75% by the end of this year. The Governor of the Bank of England – Andrew Bailey has also said inflation is likely to fall rapidly this year but has warned a U.K. recession is still on the cards.
Besides, the IMF has forecasted economic growth of 1.4% for the United States (U.S.) 0.1% for Germany and 0.7% for France. The IMF said the trend of Central Banks putting up interest rates to try to curb inflation and the war in Ukraine continued to weigh on economic activity across the world. It also stated that China’s reopening of the economy from COVID-19 restrictions paved the way for a faster-than-expected recovery globally.
