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UK economy set to have weakest performance of G7: IMF

Britain’s economy will slam into reverse this year and will have the worst performance of the advanced nations, the IMF warns.

February 1, 2023
1 February 2023

Britain is the only G7 nation to have suffered a cut to its 2023 economic growth outlook in International Monetary Fund, adding to pressure on finance minister Jeremy Hunt to come up with a growth plan.

Britain’s flagging economy now looks set to shrink by 0.6 per cent this year, a sharp downgrade from previously expected growth of 0.3 per cent in the IMF’s last forecast in October.

All other G7 economies are predicted to grow this year, mostly at a stronger pace than the IMF forecast three months ago.

The IMF said Britain would struggle with a combination of factors including higher taxes announced by Hunt late last year as he tried to restore the confidence of investors after September’s “mini-budget” of former prime minister Liz Truss.

Britain had also been hit particularly hard by the surge in gas prices after Russia’s invasion of Ukraine as it relied on gas for much of its power generation, and it faced a shortage of workers too that was holding back the economy, the IMF said.

The Bank of England’s sharp increase of interest rates to try to stamp out the risks from a jump in inflation would take its toll as well.

“All these factors taken together lead to a fairly sharp retrenchment of activity in 2023,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters on Tuesday.

By contrast, Britain was expected to have registered one of the highest growth rates in 2022 among European countries at 4.1 per cent, Gourinchas said.

Britain is the only economy in the G7 not to have recovered its pre-pandemic size, with Brexit widely seen as unique drag among its peers.

Responding to the IMF report, Hunt said nearly all advanced economies were facing headwinds, and past forecasts from a range of bodies had proven too gloomy about Britain’s prospects.

Hunt is due to announce measures that he hopes will speed up growth in a budget statement on March 15. 

For 2024, the IMF predicted Britain’s economy would grow by 0.9 per cent, a 0.3 percentage point increase from October’s forecast but still the joint slowest in the G7 with Japan and Italy.

Among the other G7 nations, the IMF’s 2023 GDP predictions show growth of 1.4 per cent in the United States, 0.1 per cent in Germany, 0.7 per cent in France, 0.6 per cent in Italy, 1.8 per cent in Japan and 1.5 per cent in Canada.

The IMF also said it believed global inflation had passed its peak and would fall from 8.8 per cent last year to 6.6 per cent in 2023 and 4.3 per cent in 2024 as interest rate hikes cool demand and slow price rises.

Reuters and PA

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