UK to Be Worst-Performing G-7 Economy This Year, Predicts IMF

A general view of the Bank of England, in London, on Nov. 11, 2022. (Dan Kitwood/Getty Images)

The International Monetary Fund (IMF) expects the UK economy to grow more slowly than all other Group of Seven (G-7) advanced economies, though it has upgraded its forecast for the country.

The latest IMF forecast shows that UK economic output is expected to contract by 0.3 percent this year before rebounding to grow by 1 percent next year.

It puts the UK firmly at the bottom in the G-7 this year. The only other economy that the IMF expects to decline is Germany, which is expected to contract by 0.1 percent.

But it is better than a previous IMF forecast, which predicted that the UK economy would shrink by 0.6 percent this year.

People shopping on Oxford Street in London, on Dec. 27, 2022. (James Manning/PA Media)

The IMF said in its forecast: “Notably, emerging market and developing economies are already powering ahead in many cases, with growth rates (fourth quarter over fourth quarter) jumping from 2.8 percent in 2022 to 4.5 percent this year.

“The slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom.”

Next year is more of a mixed bag for the UK, whose output is expected to rise by 1 percent. It puts the UK towards the bottom of the G-7 yet again, tied with Japan and slightly ahead of Italy, which is set to grow by 0.8 percent.

Gas Dependence

IMF Director of Research Pierre-Olivier Gourinchas said: “The UK economy seems to be doing a little bit worse than some other comparable economies [because] there is a higher dependence on imported energy with a high share of gas—and with the gas prices we’ve had last year, that’s a major negative trade shock—there’s a fairly tight labour market and so there has been a need for fairly aggressive tightening of monetary policy.”

The IMF also warned of further problems in the months ahead, following the recent chaos in the banking sector which saw several U.S. banks go out of business and Swiss banking giant Credit Suisse bought by rival UBS.

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

In the UK, inflation is expected to fall from 9.1 percent last year to 6.8 percent this year and 3 percent in 2024.

Better Than Expected

This follows predictions from the Bank of England that the UK’s economic growth will be better than it previously thought.

The central bank said on March 23 that it now expects UK GDP to increase slightly in the three months from the start of April, reversing an earlier forecast that it would fall by 0.4 percent.

Earlier, the Office for Budget Responsibility (OBR), the UK government’s official economic forecaster, said the UK economy is expected to shrink less than previously expected and will avoid a “technical recession.”

But it still forecast a contraction of 0.2 percent this year, though it is a significant improvement on the 1.4 percent shrinkage predicted in November.

The OBR also upgraded its growth forecast for 2024 from 1.3 percent to 1.8 percent, but downgraded predictions for the following years to 2.5 percent in 2025, 2.1 percent in 2026, and 1.9 percent in 2027.

It forecast that inflation in the UK will fall from 10.7 percent in the final quarter of last year to 2.9 percent by the end of 2023, partly owing to the impact of the cost-cutting measures.

The OBR also said that living standards are expected to fall by the largest amount since records began, though the decline is not as bad as had been forecast in November.

It added that the UK’s tax burden is expected to reach a post-war high of 37.7 percent of GDP in 2027–28, the highest since the Second World War.

‘On the Right Track’

Responding to the IMF forecast, Chancellor of the Exchequer Jeremy Hunt said: “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 G-7 country.

“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.”

But opposition parties have criticised the Conservative government’s economic record.

Labour’s shadow chancellor Rachel Reeves said, “IMF projections that Britain will have a smaller economy by the end of the year, and the poorest growth in the G-7 over this year and next, shows just how far we continue to lag behind on the global stage.”

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

PA Media contributed to this report.