The UK economy may have the worst performance of all of the advanced nations this yr as the associated fee of living crisis hits households hard. The warning has come from the International Monetary Foundation (IMF) as Britain looks set to suffer greater than most from soaring inflation and better rates of interest.
In its latest World Economic Outlook update, the IMF downgraded its UK gross domestic product (GDP) forecast once more, predicting a contraction of 0.6 percent against the 0.3 percent growth pencilled in last October
But it surely 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 yr ahead puts the UK far behind its counterparts within the G7 group of advanced nations and the one country – across advanced and emerging economies – expected by the IMF to suffer a yr of declining GDP.
Among the many other G7 nations, the IMF’s 2023 GDP predictions show growth of 1.4 percent in the US, 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 greater 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 speak up the UK economy and its growth prospects in his first major speech within the post, declaring that “declinism about Britain was fallacious up to now and it’s fallacious today”.
Nevertheless, the IMF offered a chink of sunshine within the otherwise gloomy economic update, predicting that the worldwide slowdown will probably be shallower than first feared.
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It upgraded its global growth forecast, to 2.9 percent in 2023 from the two.7 percent predicted in October because it said the reopening of China after strict Covid restrictions has “paved the way in which for a faster-than-expected recovery”.
The IMF also said it believes global inflation has passed its peak and can fall from 8.8 last yr to six.6 percent in 2023 and 4.3 percent in 2024 as rate of interest hikes by central banks begin to chill demand and slow price rises.
But it surely warned that, within the UK and Europe, surging prices and the impact of motion taken to rein in inflation, will proceed 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 in regards to the overall tax cuts.
“As we all know, tax cuts create/increase a government budget deficit, which often causes economic growth to fall if the federal government sector is significantly large.
“Nevertheless, the federal government can consider revising the tax structure. Then again, how the federal government plans to chop the inflation rate within the short run is unclear.
If the plan is to extend the rate of interest further, that may create extra pressure on the already high mortgage rate and, thus, the associated fee of living.”