The IMF predicts a UK recession even as other leading economies grow

The IMF predicts a UK recession at the same time as different main economies develop

Britain is the one main economic system prone to fall into recession this yr, the IMF mentioned on Tuesday, predicting that UK family spending will falter beneath the burden of excessive power costs, rising mortgage prices and elevated taxes.

The fund up to date its forecasts for many main economies, saying the worldwide outlook had improved. However she singled out the UK as an exception, saying it did British economy will lower by 0.5 % between the final quarter of 2022 and the final quarter of this yr.

Even Russia’s economic system is now prone to overtake that of the UK, forecast by the IMF to develop by 1 per cent this yr.

Pierre-Olivier Gourinchas, the IMF’s chief economist, mentioned the UK might anticipate a “sharp correction” in 2023, including that the nation confronted a “fairly difficult atmosphere”.

The IMF a forecast that UK output will fall by 0.5 % in 2023 represents a reduce from its October progress forecast of 0.2 % for this yr. In distinction, the fund improved its international financial forecast by 0.5 proportion factors over the identical interval.

Gourinchas mentioned eurozone economies had been “surprisingly resilient” whereas the US had a “slim path” to keep away from recession, with inflation falling and unemployment solely rising modestly.

Bar chart of the IMF's forecast for GDP growth in 2023 (year-on-year % change, Q4 vs Q4), showing that India is expected to be the fastest growing major economy

The IMF additionally thinks that Beijing’s choice abandon its zero Covid policy will assist China obtain 5.9 % progress by the top of this yr, greater than double the 2022 tempo of two.9 %.

British Chancellor Jeremy Hunt mentioned the IMF forecast confirmed the UK was “not resistant to the pressures affecting virtually all superior economies”. He added that Britain beat many forecasts final yr and is on observe to outgrow Germany and Japan within the coming years if it meets its goal of halving inflation.

However Gourinchas mentioned British shoppers and corporations had discovered themselves unusually uncovered to excessive power costs. He mentioned debtors would even be hit by increased mortgage charges this yr because the Financial institution of England continued to boost rates of interest to counter inflation, which, whereas apparently previous its peak, was nonetheless 10.5 per cent in December.

The Financial institution of England is anticipated to boost rates of interest by 0.5 proportion level to 4 % on Thursday.

Gourinchas additionally skilled difficulties as a result of UK labor market. Different European nations have seen job-seeking surges for the reason that peak of the pandemic, which has helped hold worth rises beneath wraps and increase progress.

This has not been the case to the identical extent for the UK, which has been affected by a better reluctance to return to the workforce in addition to a post-Brexit labor scarcity.

The BoE is ready to revise its personal forecasts on Thursday and is prone to current estimates near these of the IMF. That might be an enchancment from the awful outlook the central financial institution gave in early November, when wholesale gasoline costs had been a lot increased than at this time.

The BoE forecast in November that home product progress would fall by 1.9 % between the fourth quarter of 2022 and the equal interval this yr.

Bar chart of cumulative growth in 2022 and 2023 showing the IMF has selected the UK for a large cut in its economic outlook


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