According to the IMF, UK will have worst inflation and weakest growth of any G7 economy next year along with economic growth declining to 0.5% in 2023
The International Monetary Fund (IMF) has warned that of all the Group of Seven (G&7) economies, the United Kingdom (U.K.) will have the highest inflation and slowest growth rate next year.
The U.K. said that the recent revisions to U.K. growth had not been factored into the IMF’s report. Also, the outlook was drawn up before this weekend’s developments, where Israel declared war on the Palestinian militant group – Hamas after it carried out an unprecedented attack by air, sea and land. The large-scale surprise assault has left at least 900 dead in Israel, prompting a lethal volley of retaliatory Israeli airstrikes on Gaza that killed at least 765 people.
The IMF said the forecasts it makes for growth the following year in most advanced economies have, more often than not, been within about 1.5% points of what actually happens. In July 2022, it forecasted that the U.K. economy would grow by 3.2% in 2022. It revised that upwards to 4.1% at the start of 2023. However, the official figures released by the U.K. estimated that the country’s economy actually expanded by 4.3% in 2022.
The IMF report said it expects the U.K. to grow more quickly than Germany in 2023, but it downgraded the U.K.’s prospects for growth next year, estimating the economy will grow by 0.6%, making it the slowest-growing developed country in 2024.
It said that the U.K.’s immediate prospects are being weighed down by the need to keep interest rates high to control inflation, which has been falling but remains stubbornly above target. The rising rates make it more expensive for people to borrow money, which means households will have to cut back and buy fewer things. It also might mean that firms will raise prices less quickly.
The Report read, “The decline in [UK] growth reflects tighter monetary policies to curb still-high inflation and lingering impacts of the terms-of-trade shock from high energy prices.”
Reacting to the report, the Chancellor of the Exchequer, U.K. – Jeremy Hunt, said, “The IMF has upgraded growth for this year and downgraded it for next – but longer term they say our growth will be higher than France, Germany or Italy.
He further said, “To get there we need to deal with inflation and do more to unlock growth.”
Meanwhile, the Bank of England’s Financial Policy Committee (FPC), which monitors the stability of the U.K. financial system, has also warned about high-interest rates. Financial markets expected rates would have to stay high for a long time and this would put pressure on household finances.
Worldwide, inflation had more than halved from its peak of 11.6% in the second quarter of 2022 to 5.3% a year later. But global growth is projected to fall from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024.
Besides, the IMF has also warned of signs of a slowdown in the world economy. Although the tourism sector did recover from the Coronavirus (COVID-19), boosting economies with large travel and tourism sectors such as Italy, Mexico and Spain, a slowdown in interest-rate-sensitive manufacturing sectors is dragging on growth and there are signs that China’s momentum is fading following its “reopening surge” at the start of 2023.
