Britain now looks set for a shallower economic hit this year than previously thought but remains on course to suffer the sharpest contraction among the world’s big economies, the International Monetary Fund said on Tuesday.
British gross domestic product will contract by 0.3% in 2023, the IMF said in its latest set of global forecasts, a smaller shrinkage than the 0.6% contraction the Fund predicted in January.
Britain is no longer the only Group of Seven economy set for a fall in GDP this year as Germany is now expected to shrink by 0.1%, the IMF forecasts showed.
But its contraction this year is set to be the biggest among the Group of 20 economies, according to the IMF’s forecasts.
Finance minister Jeremy Hunt found some reasons to cheer the forecast, noting that the upgrade from January was the biggest among the G7 nations.After narrowly avoiding recession in 2022, Britain’s economy has shown some signs of resilience in early 2023. The Bank of England says it expects slight growth in the second quarter after a small contraction in the first three months of the year.
Prime Minister Rishi Sunak and Hunt are under pressure to get Britain’s economy growing more quickly before an election expected next year but so far they have defied pressure from within their Conservative Party to cut taxes, saying they are focused primarily on lowering inflation.
The IMF forecast Britain’s inflation would average 6.8% in 2023, down from 9.1% in 2022 but still way above the BoE’s 2% target and the highest among the G7 countries.
Asked why Britain was underperforming on growth, Olivier Gourinchas, Director of the IMF’s Research Department, cited its reliance on gas, which surged in price last year after Russia’s invasion of Ukraine, and its tight labour market which led to a “fairly aggressive” run of interest rate hikes by the BoE.
“There’s already some signs of the transmission of this monetary policy to the broader economy,” Gourinchas told reporters in Washington where the IMF is holdings its twice-yearly meetings of top finance officials.
The IMF said it expected Britain’s economy would grow by 1.0% in 2024, weaker than most other G7 economies with the exception of Italy while matching Japan’s expected growth rate.
(Writing by William Schomberg; Editing by Chizu Nomiyama and Christina Fincher)