The International Monetary Fund has cautioned that the UK is likely to see the worst growth among the G7’s biggest nations in 2019.
Compared to its April projection of 1.2 percent, it now projects that UK growth would only reach 0.5 percent in 2023.
According to the IMF, the world economy has contracted for the first time since 2020 as a result of the conflict in Ukraine and COVID-19.
The globe “may soon be teetering on the verge of a global recession” as GDP slows down in the UK, US, China, and Europe, it said.
A HM Treasury spokesperson said in a statement that “we know that people are feeling the impact of rising prices, caused by global economic factors, triggered by the illegal Russian invasion of Ukraine.” She added that help for households included £400 off energy bills and personal tax cuts worth up to £330 per year.
The IMF has lowered its projection for global GDP in 2022 to only 3.2% and issued a warning that the decline might become even more severe.
According to the report, a large portion of the slowdown was caused by rapidly rising prices, which squeezed families and companies due to both higher prices and increased borrowing costs as authorities raised interest rates to attempt to combat inflation.
According to economist Pierre-Olivier Gourinchas, who wrote a blog post outlining the most recent economic forecast from the international lending organization, “the global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook.”
Since the IMF last released projections in April, “the picture has deteriorated dramatically,” he continued.
According to the IMF, the global economy shrank in the three months leading up to July, marking the first decrease since the epidemic began.
In the G7 economies—Canada, France, Germany, Italy, Japan, the US, and the UK—the likelihood of a recession is currently over 15%, nearly four times higher than average.
While UK GDP is anticipated to continue comparatively robust this year, Mr. Gourinchas said he expects 2023 to be impacted by abnormally high inflation that is occurring more quickly than in either Europe or the US.
He told the BBC that, when you combine the two years, “it’s actually not that far off where the other advanced economies are.” “Their inflation statistics seem to be fairly high, which is the one aspect of the UK economy that concerns me more. High gas prices have a large spillover effect on other prices in the economy.
That would indicate that the Bank of England is tightening monetary policy even further, which would have an adverse effect on future growth.
The IMF has increased its inflation forecast from what it had predicted in April to 6.6 percent in advanced countries and 9.5 percent in emerging market and developing economies.
Bringing inflation back to central bank objectives should be the primary concern for policymakers, according to Mr. Gourinchas. “Inflation at current levels implies a significant risk for current and future macroeconomic stability,” he said.
Real economic consequences of tighter monetary policy are inevitable, but postponing implementation would make the situation worse.