The UK is set to be one of the worst performing major economies in the world this year, according to the International Monetary Fund (IMF). Its latest forecast predicts that the UK economy will shrink by 0.3% in 2023, making it the worst performer among the G20 group of the world’s 20 largest economies. This is a slight upgrade from its previous prediction of a 0.6% contraction, made in January.
The IMF has attributed the UK’s weak economic performance to its exposure to high gas prices, rising interest rates and a sluggish trade performance. Chancellor Jeremy Hunt has responded to the latest IMF’s predictions, saying: “Our IMF growth forecasts have been upgraded by more than any other G7 country.” However, Labour’s shadow chancellor Rachel Reeves and Liberal Democrat Treasury spokesperson Sarah Olney have both criticised the government’s record on the economy.
Forecasts are made to give a guide to what is most likely to happen in the future, but they are not always right. An analysis conducted by the IMF of recessions around the world between 1992 and 2014 showed that previous IMF forecasts picked up fewer than 10% of recessions a year ahead of time.
A number of forecasters now think the chances of a recession in the UK this year are declining. The independent Office for Budget Responsibility expects the economy to contract by 0.2% this year but avoid a recession, while Bank of England governor Andrew Bailey has said he is “much more hopeful” for the economy.
The IMF also warned of a “rocky road” for the global financial system, following the collapse of two US banks last month and the rushed takeover of Swiss banking giant Credit Suisse by its rival UBS. It now expects global growth to fall from 3.4% in 2022 to 2.8% in 2023, before rising slowly and settling at 3% in five years’ time.
The IMF said it expects real interest rates – which take into account inflation – in major economies to fall to pre-pandemic levels because of low productivity and ageing populations. Central banks in the UK, the US, Europe and other nations have been increasing interest rates to combat the rate of price rises, otherwise known as inflation. In response, the Bank of England has been raising interest rates, and last month increased them to 4.25%. However, in a blog the IMF said that “recent increases in real interest rates are likely to be temporary”.