UK Economy News: IMF says UK economy will perform worse than any other G7 country or even Russia this year.

UK in recession:

               The Bad News list for inflation-hit UK lengthens as IMF has said that UK would face worse economic conditions than any other developed country or its G7 mates this year. IMF says UK economy will shrink instead of growing, and even Russian economy will perform better than UK's even though Russia is facing sanctions from most of the western countries. In a previous forecast, IMF predicted 0.3% growth in UK economy but now IMF expects the gross domestic product (GDP) of United Kingdom to shrink by 0.6% in 2023. This news has put a question mark on UK government's policies as the Treasury plans to raise taxes in upcoming years while UK inflation problem is still to be solved.

             In this article, we will look at IMF's latest report, world economic outlook, and the main reasons why UK economy is expected to shrink.

UK Economy Forecast:

             UK will enter a recession this year and it will be the only G7 nation to shrink in 2023, says IMF latest report. In the report, International Monetary Fund shared its global economic forecast. Surprisingly, sanctions-hit Russia is expected to perform better than the United Kingdom which has been struggling since the pandemic.

             According to the report, UK should expect a 0.6% shrink in its GDP although IMF predicted 0.3% growth a few months ago. The report said that while the global economy was doing better than expected, UK economy would still face a downgrade due to tighter monetary policies and high energy prices.

             Among the other G7 nations, IMF predicts a GDP growth of 1.4% in the US, 0.7% in France, 0.6% in Italy, 0.1% in Germany, 1.8% in Japan and 1.5% in Canada. Russia will also see a 0.3% increase in its GDP according to this report, despite being hit by the sanctions from many countries (including UK) after it invaded Ukraine.

Source: IMF (Credit: BBC)

Reasons:

                   IMF's chief economist Pierre-Olivier Gourinchas said there were three primary factors responsible for UK's economic crisis:     

• UK is directly exposed to the fluctuating gas prices because of its high dependency on natural gas for its energy requirements. Due to the recent surge in gas price in global market as a result of Russia-Ukraine war, the gas prices in UK have increased sharply because of high pass-through to the final customers. This causes an increase in inflation and cost of living leading to a weaker economy. 
• "The UK's employment levels have not recovered to the pre-pandemic levels", said IMF's chief economist who considered it the second major factor blocking the UK's economic growth. In such cases when employment levels are low, a country does not have enough labour force which could fulfill the country's needs. This results in less production, and eventually lesser exports.
• The third factor according to IMF's chief economist is the sharp monetary tightening as the UK is implementing very tight monetary policies because of record inflation. Inflation was 9.1% last year and it is expected to be quite high this year too at 8.2%, so the Bank of England has started tightening.     

UK's Reaction:

              In response to the IMF forecast, chancellor Jeremy Hunt said,

"According to the governor of The Bank of England, any UK recession is likely to be shallower than previously predicted, however these (IMF) figures confirm we are not immune to the pressures hitting nearly all advanced economies."

He added, "Short-term changes should not alter our long-term vision. UK outperformed many forecasts last year, and UK is still predicted to grow faster than Japan and Germany over the coming years if we stick to our plan to halve the inflation". Many other politicians and experts are also optimistic that UK will be able to cope with the challenges soon.

IMF World Economic Outlook:

             IMF, however, shared a good news about the global economy once again saying it now expected the global economy to grow by 2.9% in 2023. Although this is less than the economic growth last year which was about 3.4%, it is nonetheless 0.2% more than what IMF predicted in October. Remember, IMF predicted a few months ago (in October) that the global economy will expand by 2.7% in the year 2023. IMF said, "Adverse effects have moderated since the October 2022 (World Economic Outlook)".

             However, IMF said some potential factors could "hold back" the economic recovery, such as severe health outcomes in China, Russia-Ukraine war, and worsen debt pressure. IMF says UK economy may rebound next year with an economic growth of 0.9%. But as for now, the chances of recovery are slim. That was the complete summary of economic situation of UK and IMF's economy forecast. If you liked our article, share it and make sure you keep visiting "World Articles". Click here to find out more of these interesting articles and latest global news. Thanks.