IMF downgrades UK growth forecast, predicting only economic decline among G-7 countries

LONDON — The International Monetary Fund downgraded its outlook for the U.K. system adjacent arsenic it turns much optimistic connected planetary growth.

Its caller 2023 forecast connected Monday evening besides sees the U.K. arsenic the lone "advanced economy" to contract, by 0.6%. This is 0.9 percent points little than its erstwhile estimate.

It is besides worse than its outlook for Russia, wherever it forecasts a 0.3% decline.

IMF Head of Research Pierre-Olivier Gourinchas said determination were 3 main reasons: The U.K.'s precocious vulnerability to earthy gas, with higher marketplace prices being passed connected to consumers; employment remaining beneath its pre-pandemic level contempt a precise choky labour market, resulting successful little production; and crisp monetary tightening.

However, the radical did revise its 2024 outlook for the U.K. upward, from an enlargement of 0.6% to 0.9%.

The IMF forecasts 1.4% maturation successful the U.S. successful 2023, 0.7% maturation successful the euro area, 1.8% maturation successful Japan and 1.5% maturation successful Canada.

Meanwhile, it hiked its outlook for the planetary system by 0.2 percent points from its past study successful October, to 2.9%.

That is inactive anemic by humanities standards, but factors including China's Covid-19 reopening, a robust labour marketplace and household depletion successful the U.S. and better-than-expected adaptation to the vigor situation successful Europe person brightened the picture, the IMF says.

But it said that successful the U.K. arsenic good arsenic different European countries, persistently precocious ostentation and tighter fiscal and monetary policies would measurement connected household budgets.

Preliminary figures retired Tuesday indicated the euro portion avoided a contraction successful the 4th fourth of 2022, eking retired 0.1% maturation versus 0.3% maturation successful the 3rd quarter, though immoderate inactive judge the bloc volition participate a recession.

U.K. GDP is estimated to person fallen 0.3% successful the 3rd quarter, and 4th fourth results owed Feb. 10 are wide expected to amusement different decline.

Pessimistic projections for the U.K. from teams astatine Goldman Sachs and KPMG person besides flagged the compression connected disposable income arsenic a cardinal concern, arsenic good arsenic a imaginable deterioration of the labour marketplace this year.

The U.K. faces challenges including precocious long-term sickness rates and a simplification successful commercialized owed to Brexit.

Since the IMF past prepared a forecast, the U.K. has besides been done the turmoil of erstwhile Prime Minister Liz Truss' budget, which was pitched arsenic a extremist program to boost maturation but was quickly reversed aft sparking chaos successful fiscal markets.

In November, the Bank of England said it expected a 1.5% diminution successful U.K. GDP during 2023, though it has since said a somewhat improved ostentation outlook and short-term fiscal enactment packages would amended the picture. It is apt to supply an update successful its monetary argumentation announcement connected Thursday.

Paul Johnson, manager of probe radical the Institute for Fiscal Studies, said it was "hard to spot what was driving" the IMF's U.K. forecast, and wherefore it had "deteriorated since Autumn."

He added the twelvemonth would beryllium "tough" and spot a autumn successful surviving standards and a stagnant economy, but determination was small caller successful the IMF update.

Sophie Lund-Yates, pb equity expert astatine Hargreaves Lansdown, said successful a enactment that alongside a labour shortage and over-exposure to vigor retail prices, the U.K.'s unsocial challenges included prohibitively precocious owe rates.

"There's a accidental the U.K. could muster a amended show than the IMF is predicting, fixed upgrades to expectations from different bodies successful caller months," she said.

"The marketplace volition stay precise delicate to involvement complaint and ostentation readings until we person a wide way retired of the stagnation."

British Finance Minister Jeremy Hunt responded to the IMF forecast: "Short-term challenges should not obscure our semipermanent prospects. The UK outperformed galore forecasts past year, and if we instrumentality to our program to halve inflation, the UK is inactive predicted to turn faster than Germany and Japan implicit the coming years." 

Last week helium gave a speech to tech bosses urging much optimism connected the U.K. economy.