UK economy set to have weakest performance of G7: IMF

The ailing British economy is now expected to contract by 0.6 percent this year, a sharp downgrade from previously expected growth of 0.3 percent in the IMF’s last October forecast.

All other G7 economies are expected to grow this year, mostly at a faster pace than the IMF forecast three months ago.

The IMF said Britain will struggle with a combination of factors, including higher taxes, which Hunt announced late last year as he tried to restore investor confidence after former Prime Minister Liz Truss’ “mini-budget” in September .

Britain was also particularly hard hit by the rise in gas prices following Russia’s invasion of Ukraine, as it relied on gas for much of its electricity generation and also faced a labor shortage that slowed the economy, the IMF said.

The Bank of England’s sharp hike in interest rates to eradicate the risks of a spike in inflation would also take its toll.

“All of these factors combine to result in a fairly severe reduction in activity in 2023,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters on Tuesday.

In contrast, Britain is expected to have recorded one of the highest growth rates among European countries in 2022, at 4.1 percent, Gourinchas said.

The UK is the only G7 economy not to have regained its pre-pandemic size, with Brexit widely seen as a unique burden among its peers.

Responding to the IMF report, Hunt said almost all advanced economies were facing headwinds and previous forecasts by a number of bodies had proved overly gloomy about the UK’s prospects.

Hunt will announce measures he hopes will accelerate growth in a March 15 budget statement

For 2024, the IMF forecast the UK economy would grow by 0.9 per cent, up 0.3 percentage points from the October forecast but still the slowest in the G7 with Japan and Italy.

Among the other G7 countries, IMF GDP projections for 2023 show growth of 1.4 percent in the United States, 0.1 percent in Germany, 0.7 percent in France, 0.6 percent in Italy, 1, 8 percent in Japan and 1.5 percent in Japan Canada.

The IMF also said it believes global inflation has peaked and will fall from 8.8 percent last year to 6.6 percent in 2023 and 4.3 percent in 2024 as interest rate hikes cool demand and would slow price increases.

Reuters and PA