- By Faisal Islam & Noor Nanji
- BBC News
The UK is expected to be one of the worst performing major economies in the world this year, according to the International Monetary Fund (IMF).
It says the performance of Britain’s economy in 2023 will be the worst among the 20 biggest economies, known as the G20, which includes sanctions-hit Russia.
The IMF predicts the UK economy will contract this year, although this is a small improvement on its last forecast.
He also warned of a “rocky road” for the global financial system.
It follows the collapse of two US banks last month, closely followed by a hasty takeover of Swiss banking giant Credit Suisse by rival UBS, which raised fears of another financial crisis.
The IMF had already predicted that the UK would experience a slowdown this year and be at the bottom of the pile of the G7 – a group of the world’s seven largest so-called “advanced” economies, which dominate global trade and the international financial system. The UK topped the group in 2022 during the pandemic rebound.
He now expects the UK economy to contract by 0.3% in 2023 and then grow by 1% next year.
Although the UK is expected to experience the worst economic performance this year, the IMF’s latest forecast is slightly better than its previous expectation of a 0.6% contraction, made in January.
IMF researchers have previously pointed to Britain’s exposure to high gas prices, rising interest rates and sluggish trade performance as the reasons for its poor economic performance.
Forecasts are made to give a guide to what is most likely to happen in the future, but they are not always accurate. For example, previous IMF forecasts predicted less than 10% of recessions a year ahead, according to an analysis it conducted of global recessions between 1992 and 2014.
Responding to the latest IMF forecast, Chancellor Jeremy Hunt said: “Our IMF growth forecast has been revised upwards by more than any other G7 country.
“The IMF now says we’re on track for economic growth. By sticking to the plan, we’ll more than halve inflation this year, easing the pressure on everyone.”
But Rachel Reeves, Labour’s shadow chancellor, said the estimates showed ‘how far behind we continue to be on the world stage’.
“This matters not just because 13 years of weak growth under the Tories is weakening our economy, but because that’s why families are worse off, facing a Tory mortgage penalty and seeing living standards plummet to fastest pace since records began,” she added.
Liberal Democrat Treasury spokeswoman Sarah Olney said the forecast was “another damning indictment of this Conservative government’s record on the economy.”
A number of forecasters believe the chances of a UK recession this year are down. An economy is generally said to be in recession if it contracts for two consecutive three-month periods.
The Independent Office for Budget Responsibility now expects the economy to contract by 0.2% this year, but avoid a recession.
The new forecast comes against the backdrop of a global economy that continues to recover from both the pandemic and the energy shock of the war in Ukraine.
But the IMF said there were concerns about the wider impact of the recent fragility in global banking markets.
The IMF now expects global growth to rise from 3.4% in 2022 to 2.8% in 2023, before slowly picking up and stabilizing at 3% in five years.
But he warned that if there were more stress in the financial sector, global growth could weaken further this year.
Interest rates should fall
Separately, the IMF said it expects real interest rates – which adjust for inflation – in major economies to fall to pre-pandemic levels due to low productivity and of the aging of populations.
Central banks in the UK, US, Europe and other countries have raised interest rates to combat the rate of rising prices, otherwise known as inflation.
In the UK, inflation is at its highest in almost 40 years due to rising energy prices and soaring food prices. In response, the Bank of England raised interest rates and raised them last month to 4.25%.
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