UK to see worst economic performance among G7 peers in 2023: IMF

BRITAIN is expected to suffer one of the biggest rises in unemployment after the International Monetary Fund (IMF) put it bottom of the pile again in its latest growth forecasts.

The lender of last resort predicted a 0.3 per cent slide in UK economic output in 2023, with the UK also faring worse than other major economies on unemployment and inflation.

The downturn will trigger a one-percentage-point rise in the jobless rate to 4.7 per cent in 2024, compared to flat or falling joblessness across much of Europe.

The forecasts underscore the pessimism held by international institutions towards the British economy as households are squeezed by double-digit inflation and the government battles to restore its fiscal credibility. A rise in unemployment would at least loosen Britain’s extremely tight jobs market, where worker shortages have helped to fuel inflation.

“This year’s economic slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom,” said Pierre-Olivier Gourinchas, IMF director of research.

He pointed to a higher reliance on imported gas and Bank of England (BOE) interest rate increases as reasons behind the UK’s expected underperformance.

“It’s a fairly tight labour market, so there’s been a need for a fairly aggressive tightening of monetary policy and there are already some signs of the transmission of this monetary policy to the broader economy,” he said.

The IMF handed Britain an upgrade in its World Economic Outlook forecasts but still expects it to suffer the largest contraction of any G20 economy, followed by an anaemic 1 per cent rebound in GDP next year. Germany is the only other large economy predicted to shrink in 2023.

“There is slightly less fiscal contraction in the pipeline as we interpret it but at the same time there is also the effect of tighter financial conditions,” Gourinchas said.

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Taken together, the IMF forecasts leave UK output just 0.7 per cent higher in 2024 than it was in 2022, the worst performance in the G20.

“The IMF now say we are on the right track for economic growth,” Chancellor of the Exchequer Jeremy Hunt said in response to the forecasts. “By sticking to the plan we will more than halve inflation this year, easing the pressure on everyone.”

The IMF expects UK inflation to remain higher than the major eurozone economies at 6.8 per cent in 2023, while only the US is predicted to suffer a bigger unemployment increase among G7 economies over the coming years. Unemployment will rise to 4.7 per cent in 2024 from 3.7 per cent currently, compared to flat at 6.8 per cent in the eurozone in the next two years.

The UK was also bottom of the pack in the IMF’s previous forecasts in January but recent data suggests its economy has been more resilient than many had expected. The BOE said last month that the economy could even swerve a technical recession as the outlook improves. BLOOMBERG