UK economy to shrink by 0.3% – the worst of any G7 country as IMF warns of more turmoil

The economic forecast is better – but still the worst in the G7 (PA)

The Independent
By Alastair Jamieson and Jon Stone

Britain is on course for the worst economic performance of the G7, the International Monetary Fund (IMF) predicted as it warned of more turmoil in a “fragile” global financial system.

UK output is expected to contract by 0.3% this year before rebounding to grow by 1% next year, its economists said.

The prediction puts Britain firmly at the bottom of the G7 economically advanced nations, and is the only country except Germany set to see a decline, while many non-G7 emerging and developing nations are “already powering ahead”.

The IMF also trimmed its worldwide growth outlook for this year, warning that stubbronly high inflation, and any further chaos in the banking system, could slash output to near-recession levels.

“With the recent increase in financial market volatility, the fog around the world economic outlook has thickened,” it said. “Uncertainty is high and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled.”

It singled out the UK and parts of Europe as facing an economic struggle over the coming years.

“Notably, emerging market and developing economies are already powering ahead in many cases, with growth rates jumping from 2.8% in 2022 to 4.5% this year,” it said.

In 2024, Britain will finally see output rise, to 1% – tied with Japan but slightly ahead of Italy. Inflation is expected to fall from 9.1% last year to 6.8% this year and 3% in 2024, e IMF said.

“Below the surface, however, turbulence is building, and the situation is quite fragile, as the recent bout of banking instability reminded us,” it said.

“Inflation is much stickier than anticipated even a few months ago. While global inflation has declined, that reflects mostly the sharp reversal in energy and food prices.

“But core inflation, excluding the volatile energy and food components, has not yet peaked in many countries.”

The IMF is now forecasting global real GDP growth at 2.8% for 2023 and 3.0% for 2024, marking a sharp slowdown from 3.4% growth in 2022.

Potential risks ahead include persistently high inflation that requires more aggressive central bank rate hikes, escalation of Russia’s war in Ukraine, and setbacks in China’s recovery from Covid.

The IMF forecasts do not include the impact of a recent oil output cut by OPEC+ countries that has caused oil prices to spike.

Rachel Reeves, Labour’s Shadow Chancellor, said the IMF’s verdict “shows just how far we continue to lag behind on the global stage”.

“This matters not just because 13 years of low growth under the Tories are weakening our economy, but because it’s why families are worse off, facing a Tory mortgage penalty and seeing living standards falling at their fastest rate since records began,” she added.

“The government should be easing the cost of living crisis now, by backing Labour’s plan to freeze council tax this year, funded by a proper windfall tax on oil and gas giants.”

Liberal Democrat Treasury spokesperson Sarah Olney argued that the forecast was “another damning indictment of this Conservative Government’s record on the economy”.

“Across the country, families and pensioners are already struggling with record bills, rampant inflation and the highest tax burden in 70 years. But the Conservatives either don’t get it or just don’t care.

“What the country needs is an end to all this Conservative chaos and a proper plan to get our economy growing strongly again.”

But chancellor Jeremy Hunt said the IMF’s analysis showed the UK was heading in the right direction.

“Thanks to the steps we have taken, the OBR says the UK will avoid recession, and our IMF growth forecasts have been upgraded by more than any other G7 country,” he said.

“The IMF now say we are on the right track for economic growth. By sticking to the plan we will more than halve inflation this year, easing the pressure on everyone.”