Monitoring Desk
LONDON: The UK economy will shrink and perform worse than other advanced economies as the cost of living continues to rise, according to the International Monetary Fund (IMF).
According to the IMF, the economy will contract by 0.6 percent in 2023 instead of growing slightly, as previously predicted. However, following the Autumn Statement, the IMF believes the UK economy is now “on the right track.” Last year, the UK outperformed many forecasts, according to Chancellor Jeremy Hunt.
The IMF, which works to stabilize economic growth, said in its World Economic Outlook update that the UK’s Gross Domestic Product (GDP) would contract rather than grow by 0.3% this year. It predicted that the United Kingdom would be the only country in the world’s advanced and emerging economies to have a year of declining GDP.
IMF prediction
According to the IMF, the new forecast reflects the UK’s high energy prices and financial conditions, such as high inflation. According to IMF Chief Economist Pierre-Olivier Gourinchas, the UK has a budget for 2022. He described 4.1% growth as “fairly robust,” calling it “one of the strongest growth numbers in Europe.” But we indeed predict a sharp slowdown in 2023, with growth turning negative for the year.
However, the IMF estimates UK growth of 0.9% in 2024, up from 0.6% currently.
GDP is a measure of how well or poorly an economy is doing, and in a growing economy, GDP will be slightly higher each quarter than the previous quarter.
If a country’s GDP falls for two quarters in a row, it is in recession, indicating that its economy is struggling. Companies typically make less money during a recession and the number of unemployed people increases.
In the face of growing global expectations of a milder recession, the IMF’s forecasts for the UK stand out, having been downgraded by just under a percentage point since the autumn and now expected to contract by 0.6% this year.
The IMF attributes this to rapid interest rate increases, tax increases, higher business borrowing costs, and still high domestic energy prices. The Fund stated that the UK was navigating a very complex environment and that British policy was now “on the right track” since the Autumn Statement.
Economic forecasters are only occasionally entirely correct when predicting the future. The IMF has stated that its forecasts for growth the following year in most advanced economies, including the UK, have been within about 1.5 percentage points of reality. The IMF should have mentioned Brexit as a factor in the UK’s poor performance in its report. Today marks three years since the United Kingdom left the European Union.
It said the rise in interest rates raised by central banks around the world to try to control inflation, as well as the war in Ukraine, continued to “weigh on economic activity.” However, it stated that China’s removal of Covid restrictions “paved the way for a faster-than-expected recovery” globally. According to the IMF, global inflation has peaked and will fall from 8.8% last year to 6.6% in 2023 and 4.3% in 2024.
