The UK is expected to be the second slowest-growing economy in the G7 this year, the International Monetary Fund has said, despite a major upgrade to the country’s prospects.
A new IMF forecast expects the UK’s output to grow by 0.4%
during 2023, faster than Germany, but slower than any other country in the
Group of 7 (G7).
It is an upgrade by 0.7 percentage points compared to the
IMF’s previous forecast. Consumption was stronger than expected and Brexit
uncertainty had reduced, the IMF said.
Growth in the US is expected to be the most rapid of all G7
countries at 1.8%, the IMF said on Tuesday.
This will be followed by Canada (1.7%), Japan (1.4%), Italy
(1.1%), France (0.8%), the UK (0.4%) and Germany, where output is expected to
shrink 0.3%.
Across all advanced economies, which includes the G7 and
other countries, growth is expected to drop from 2.7% to 1.5% in 2023, the IMF
said.
It expects global growth to reach 3.0%.
“Growth in the United Kingdom is projected to decline from
4.1% in 2022 to 0.4% in 2023, then to rise to 1.0% in 2024,” the IMF said.
“This is an upward revision of 0.7 percentage points for
2023, reflecting stronger-than-expected consumption and investment from the
confidence effects of falling energy prices, lower post-Brexit uncertainty
(following the Windsor Framework agreement), and a resilient financial sector
as the March global banking stress dissipates.”
It is the latest in a series of IMF forecasts which expect
the UK to lag behind many international peers this year.
But the Government has previously pushed back against this,
with Chancellor Jeremy Hunt being overheard by Sky News in April telling IMF
boss Kristalina Georgieva that “we’re very focused on proving you wrong”.
On Tuesday the Treasury said: “The IMF have praised the UK’s
decisive action to fight inflation, and today’s report confirms a big upgrade
to our growth forecast compared to April, with the UK set to grow at the same
rate as the United States and Japan next year.
“The IMF also say it’s important to rebuild our finances and
maintain financial stability; that’s why we have a clear plan to halve
inflation this year, grow the economy and get debt falling.”
On Tuesday, the IMF said that most of the countries in the
world are prioritising attempts to reduce inflation.
“Following the build-up of gas inventories in Europe and
weaker-than-expected demand in China, energy and food prices have dropped
substantially from their 2022 peaks, although food prices remain elevated,” it
added.
The IMF also said that a push on green investment was needed
to make sure that there is enough energy to meet countries’ green targets.
IMF director of research, Pierre-Olivier Gourinchas, said:
“The global economy continues to gradually recover from the pandemic and
Russia’s invasion of Ukraine.
“In the near term, the signs of progress are undeniable.
“The Covid-19 health crisis is officially over, and
supply-chain disruptions have returned to pre-pandemic levels.
“Economic activity in the first quarter of the year proved
resilient, despite the challenging environment, amid surprisingly strong labour
markets.
“Energy and food prices have come down sharply from their
war-induced peaks, allowing global inflation pressures to ease faster than
expected.
“And financial instability following the March banking
turmoil remains contained thanks to forceful action by the US and Swiss
authorities.
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