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UK Set for Slowest Economic Growth in G7

UK Set for Slowest Economic Growth in G7
Source: LSE

According to the International Monetary Fund, the war in Ukraine would “severely impede” global economic recovery, with the United Kingdom being hurt more than others.

Food and gasoline costs are rising as a result of the fighting, and the International Monetary Fund expects global economy to decline.

Its worldwide projection has been lowered, as has its outlook for the United Kingdom.

According to the report, the UK’s economy will no longer be the fastest expanding in the G7 group of major Western nations, and will be the slowest in 2023.

According to the organisation, UK economy would decelerate as families curtail spending due to pricing pressures, while rising interest rates are projected to “chill investment.”

The economy of the United Kingdom is expected to increase by 3.7 percent this year, down from 4.7 percent forecasted in January.

However, the UK is anticipated to expand at the weakest rate in the G7 and throughout Europe’s major economies next year, at just 1.2 percent, down from the earlier forecast of 2.3 percent.

Apart from highly sanctioned Russia, the UK forecast for 2023 is the slowest in the larger G20 grouping, which includes countries like China and India.

According to the IMF, the UK economy grew at the quickest rate among the G7 in 2021, and is expected to expand at the second fastest rate in 2022.

The UK’s projected low growth rates in 2023 are due in part to the UK recovering from the epidemic faster than other of its G7 rivals.

However, the UK is grappling with rising inflation, which is expected to stifle growth in 2023 as individuals cut down on their spending as their real income declines, according to the IMF. Inflation is expected to reach 9% in late 2022, according to the organization.

Rising interest rates would also weaken the UK economy in 2023 and 2023, according to the report, while government initiatives like eliminating some tax advantages will restrict company investment.

Furthermore, according to the IMF, Brexit would stifle export growth and worsen pandemic-related labor supply “scarring” by decreasing immigration.

“However, the impact of Brexit is spread over several years and is not the key cause of the slowdown in 2023,” said an organization official.

“The war’s economic impacts are spreading far and wide, like seismic waves emanating from an earthquake’s epicenter,” it stated.

The conflict is expected to reduce growth by 1.7 percentage points in Germany, where the economy is highly intertwined, according to the report.

Households will feel the consequences of the war even if they have little direct commerce with Russia and Ukraine, since central banks respond to higher inflation by boosting interest rates, making borrowing more costly, according to the IMF.

For example, in the United States, the organization cut its growth prediction for 2022 by 0.3 percentage points to 3.7 percent, noting the possibility of more aggressive interest rate hikes.

Inflationary pressures are much higher now than they were in January, when the IMF released its latest prediction.

Inflation in “established economies” is now expected to touch 5.7 percent this year, while it is expected to exceed 8.7 percent in developing markets.

Inflation in the UK is forecast to reach 5.3 percent next year, the most in the G7 and higher than all EU nations, with only crisis-ridden Argentina, Turkey, and Russia exceeding it in the G20.

In a blog post, Mr Gourinchas stated, “Inflation has become a clear and present concern for many nations.”

A few nations, such as oil exporters, are gaining an advantage. Saudi Arabia, for example, is expected to expand faster than it did in January, according to the IMF.

The hazards, however, are not just economic, according to the IMF.

It added that the war had exacerbated political tensions and caused a “more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies,” risking a “more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies.”

“Such a seismic change” would result in “long-run efficiency losses, increased volatility, and a serious challenge to the rules-based framework that has regulated international and economic relations for the last 75 years,” according to the IMF.

The IMF estimates, according to a Treasury official, “will be troubling for many people and families” in the UK.

“However, the assistance we’ve offered over the last two years has put our economy in a solid position to deal with these obstacles, including record numbers of people on payrolls and a strong economic recovery from the epidemic,” the spokesman added.

The IMF prediction, according to Labour’s shadow chancellor Rachel Reeves, “shows the tremendous hurdles confronting the UK economy.”

“While global forces may play a part, the fact that the UK is expected to have the weakest growth of any G7 economy next year, as well as the highest inflation, demonstrates the UK’s unique terrible predicament.”

“Inflation has spiraled out of control this year, causing a cost-of-living crisis that is affecting households throughout the nation,” she added, echoing Labour’s request for a windfall tax on oil and gas companies.

Christine Jardine, a Treasury spokesman for the Liberal Democrats, stated that the UK government “failed to protect the UK from spiraling energy prices and soaring inflation, yet they have gone ahead and raised people’s taxes to their highest level in 70 years.”