The IMF has upgraded its forecasts for most leading economies and predicts global growth of 2.9%. However, the UK will be the only advanced economy to shrink this year by 0.6%. Even Russia, under sanctions, will perform better than the UK.
“Growth in the United Kingdom is projected to be –0.6 percent in 2023, a 0.9 percentage point downward revision from October, reflecting tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets,” states the IMF report.
Why is the UK economy falling behind?
Liz Truss’s mini-budget of last year messed things up. The IMF, the rapid interest rate rises in the UK, tax rises, high borrowing costs for businesses, and still high domestic energy prices were all factored into a gloomy forecast.
James Cartlidge, the Exchequer Secretary to the Treasury, addressed the House of Commons today by stating that the predictions from the IMF “confirm that we are not immune to the pressures hitting nearly all advanced economies. We agree with the IMF’s focus on the high level of inflation in our country, which is why it is our top priority. Inflation is the most insidious tax rise there is and so the best tax cut now is to reduce inflation, it will help families across the country with the cost of living.” Cartlidge said that the short team challenges should not obscure the long-term forecast.
“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 that will help us deliver a stronger economy. One that is growing faster, and where everywhere across our country, people have opportunities for better-paying jobs. That is what people in this country expect and what we are working tirelessly to deliver.”
Could the IMF forecast be wrong? The Rishi Sunak’s government hopes so.