Britain faces bleakest two years of any major industrial country, IMF warns
UK Prime Minister Rishi Sunak. The UK will be the only Group of Seven member whose economy will shrink this year.
Britain faces the bleakest two years of any major industrial country with a recession in 2023 and the slowest growth of peers in 2024, the IMF predicts.
The UK will be the only Group of Seven member whose economy will shrink this year, with a contraction of 0.6%, the IMF said. That makes Britain’s outlook even worse than sanctions-hit Russia, which is expected to expand by 0.3% after contracting 2.2% in 2022.
The Washington-based institution slashed its UK outlook from October, saying higher interest rates and taxes along with government spending restraint will exacerbate a cost-of-living crisis.
The forecast highlights the challenges Prime Minister Rishi Sunak’s government faces in the leadup to the next election, which must be held by January 2025.
Across the two years, the economy will effectively stagnate — expanding just 0.3%. A recession this year would be the first, excluding the pandemic, since the financial crisis in 2009.
“The governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted,” chancellor Jeremy Hunt said in a statement. “We are not immune to the pressures hitting nearly all advanced economies. Short-term challenges should not obscure our long-term prospects,” he said.
In 2024, the British economy will rebound only slowly, growing at 0.9% — matching Japan and Italy at the bottom of the G7 league table for growth.
The forecast anticipates the first UK recession, excluding the pandemic, since the financial crisis in 2009. The IMF did not downgrade any other G7 economy this year as it raised its global growth forecast from 2.7% to a still sluggish 2.9%. An escalation of the war in Ukraine or a health crisis in China as Covid spreads could set back the world economy, it said in its World Economic Outlook update.
However, “adverse risks have moderated since October”. The downgrade to UK growth is striking because the IMF’s October forecast was prepared before the unfunded tax giveaway in September during the short-lived Liz Truss premiership. At the time, the IMF said the fiscal splurge would have boosted growth.
Since then financial conditions have tightened.
The Bank of England has raised rates from 2.25% to 3.5%, and markets now expect a further rate hike on Thursday, and for rates to settle around 4.5%. In October, the IMF attacked the UK’s planned spending spree. Bloomberg
