UK economy set for weakest growth of G7 next year after downgrade – IMF

By Isaac M October 10, 2023

The UK is forecast to record the weakest economic growth across the G7 group of advanced economies next year, according to the International Monetary Fund (IMF).

The IMF said UK interest rates are set to remain high for “a little while longer”, into at least next year, due to concerns over persistent inflation.

It came as bosses at the finance body said the global economy is “limping along” amid pressure from persistent inflation and higher borrowing costs in its latest economic outlook.

The IMF, in a new assessment of the UK economy, marginally upgraded its growth prediction for UK gross domestic product (GDP) this year to 0.5%, from 0.4%.

It would be second weakest performance across the G7, behind Germany, according to the United Nations’ financial agency.

The IMF however downgraded its forecasts for the UK’s economic growth next year.

It had previously pointed towards 1% growth for 2024 but on Tuesday reduced this prediction to 0.6% amid pressure from higher interest rates.

This would represent the worst growth rate across all of the G7, while Canada is expected to have the strongest growth, at 1.6%.

In its report, the IMF said: “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.”

The Bank of England’s base interest rate currently sits at 5.25% after policymakers held the level last month.

Chancellor of the Exchequer Jeremy Hunt said: “The IMF have 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.

“To get there we need to deal with inflation and do more to unlock growth – which I will be focusing on in the upcoming Autumn Statement.”

IMF director of research Pierre-Olivier Gourinchas said: “The general perspective on the UK is that we have relatively subdued growth, we have falling momentum and we have a labour market which is cooling but inflation remains quite persistent.

“That is going to require monetary policy to remain tight for a little while longer into next year.”

Global GDP is expected to rise by 3% this year and 2.9% next year, according to the latest forecast.

The prediction for 2023 was held the same against the organisation’s previous prediction in July, while its forecast for 2024 saw a 0.1 percentage point decline.

Mr Gourinchas said: “The global economy continues to recover from the pandemic, Russia’s invasion of Ukraine and the cost-of-living crisis. In retrospect, the resilience has been remarkable.

“Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled.

“Even so, growth remains slow and uneven, with widening divergences. The global economy is limping along, not sprinting.”

The IMF also predicted that the UK will see consumer price index (CPI) inflation of 7.7% for the current year, with this set to slow more sharply to 3.7% next year.

Shadow chief secretary to the Treasury Darren Jones said: “Britain is still paying the price for the Conservatives’ disastrous mismanagement of the economy that is forecast to leave us with the lowest growth in the G7 and working people worse off.”

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