Britain will emerge as the “sick man” of the world’s richest countries this year, snatching the unwanted title of being the only G7 economy to contract in 2023, according to forecasts by the International Monetary Fund (IMF).
The world’s economic watchdog has slashed its expectations for UK GDP again, now pencilling in a 0.6 per cent contraction in 2023, down from 0.3 per cent growth predicted in October.
The downgrade means Britain is stumbling behind its G7 peers. The IMF reckons the American, French and German economies will grow 1.4 per cent, 0.7 per cent and 0.1 per cent respectively in 2023.
Raging inflation, still running above 10 per cent and more than five times the Bank of England’s two per cent target, has eroded household spending power rapidly, squeezing demand and dragging down the economy.
The Bank’s nine successive interest rate hikes to tame price rises has heaped more misery on consumers and businesses, further hobbling the economy.
“Tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets” has choked UK GDP, the IMF said in its latest global economic outlook released in the early hours of this morning.
A string of better-than-expected data recently had boosted confidence in the underlying strength of the UK economy.
Output unexpectedly jumped 0.1 per cent in November, beating expectations of a small contraction and slashing the odds on the UK falling into a technical recession (two quarters of contraction) at the back end of last year.
The IMF also reckons Britain had the fastest growth last year, although that was driven by the country suffering a sharper hit from the Covid-19 crisis.
UK economy has been hobbling along
However, the UK is still the only G7 country with an economy smaller than it was before the pandemic.
Chancellor Jeremy Hunt batted away the IMF’s gloomy forecasts, saying they “should not obscure our long-term prospects”.
“The UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years,” Hunt, who last Friday warned against British declinism, added.
The IMF did lift its outlook for UK growth next year to 0.9 per cent, up from the 0.6 per cent expansion previously forecast.
The Washington-based organisation also bumped its global GDP growth expectations to 2.9 per cent from 2.7 per cent, mainly driven by China dismantling its tough zero Covid-19 policy, allowing the world’s second largest economy to come back online.
Worldwide inflation has passed its peak and will drop to 6.6 per cent this year from 8.8 per cent last year, the IMF reckons.