IMF says UK will face worst G7 economic performance in election year

IMF forecasts reduce the chances of any tax cuts from Rishi Sunak's government. Photo: Joe Giddens/AFP

UK economy set to underperform The International Monetary Fund (IMF) has said it will participate in the G7 next year, a move that could pose a potential headache for Rishi Sunak in his bid for the next election.< /p>

The IMF said higher interest rates were putting pressure on households and businesses as it cut its forecast for UK economic growth from 1% in 2024 to just 0.6%.

He warned that UK inflation was expected to remain the highest in the G7 this year. This will happen in 2023 and 2024, and Mr Sunak will narrowly miss his target of halving the headline rate by the end of next year.

However, the latest forecasts are based on UK interest rates reaching 6 %, which is now unlikely because inflation has fallen faster than expected.

The IMF forecasts also do not take into account recent adjustments from the Office for National Statistics, which show the economy contracted less than expected during lockdown and recovered more quickly, with stronger growth increasing the size of the economy by almost 2% compared to previous forecasts.

As a result, the forecasts were immediately met with skepticism by economists.

Simon French, chief economist at Panmure Gordon, said the IMF's forecasts were «woefully lacking the latest data» and independent economist Julian Jessop said the forecasts were «based on assumptions about UK interest rates that are now clearly too high.»

IMF officials have repeatedly sounded too pessimistic about the UK's growth prospects since the 2016 Brexit vote. The company's forecasts for next year show the UK will be at the bottom of the G7 growth league.

The slowdown in growth reflects tightening monetary policy aimed at containing still high inflation and the lingering effects of the terms of trade shock from high growth. energy prices,” says the latest World Economic Prospects report.

In contrast, the US, Germany and France are expected to grow by 1.5%, 0.9% and 1.3%, respectively.

The IMF has been forced to raise UK growth forecasts for 2023 three times this year as the economy defies gloomy forecasts.

On Tuesday, the IMF raised its growth forecast for 2023 from 0 .4% to 0.5%, having previously predicted a recession in the UK back in January.

But the IMF forecast highlights the challenges Mr Sunak faces ahead of an expected election next autumn as he tries to win political support.

Mr Sunak and Chancellor Jeremy Hunt are under increasing pressure from MPs. conservatives demanding lower taxes. to stimulate growth.

IMF forecasts also predict that Russia and Ukraine will grow faster than the UK in 2024.

He suggests Mr Hunt will have to make difficult choices if he wants to attract borrowing. in five years it will again be below 3% of GDP. This is currently one of its two fiscal targets.

The IMF has said the UK will likely still borrow the equivalent of 3.5% of GDP in 2028 — or around £90 billion in today's money. prices — to fill the gap between tax revenues and expenditures on public services.

warned that all of the borrowing was «structural», suggesting further spending cuts or tax hikes to reduce the deficit.

The IMF also said global growth prospects were «dimmering» as it trimmed its deficit. For 2024, the forecast is from 3% to 2.9%.

He warned that debts continued to rise amid a “troubling” rise in US borrowing and said the world was heading towards a permanent pace of lower growth.

“The global economy is limping, not sprinting,” Pierre said. -Olivier Gourincha, Chief Economist of the IMF.

Mr Hunt insisted Britain's growth prospects remained bright as he pledged to «tackle inflation and do more to boost economic growth» in next month's autumn statement.

He said that in » In the long term, UK growth «will be higher than France, Germany or Italy.»

On Tuesday, the IMF reiterated its gloomy forecast for UK growth, warning that economic growth and higher inflation will continue to weigh on economy until the end of this year.

Mr Gurinshas said the UK's «fairly weak economic growth» would be accompanied by «elevated» inflation.

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He said: «The overall the thought about the UK is that we have fairly sluggish growth, slowing down. Our labor market is cooling, but inflation remains fairly stable, and this will require maintaining tight monetary policy for some time, until next year.”