The International Monetary Fund (IMF) claims that the UK’s economy will contract by 0.6 per cent in 2023, performing worse than other advanced economies and even Russia, as the rising cost of living bites households’ purchasing power.
Previously, the IMF had expected the UK’s economy to grow during 2023 but that no longer seems to be the case. Shadow chancellor Rachel Reeves said they are “lagging behind [its] peers.”
The IMF explains that its pessimistic forecast is due to rapid increases in interest rates, tax, and higher business borrowing costs, while domestic energy prices are still high. Russia’s economy, meanwhile, despite the war and sanctions, is expected to grow.
Chief economist of the IMF, Pierre-Olivier Gourinchinas said the 2023 forecast reflects the UK’s, “high dependence on liquid natural gas” and its employment level still being below pre-pandemic levels.
While the country’s economy is expected to shrink in 2023, the IMF still expects the UK’s economy to grow in 2024, albeit by 0.6 per cent. If the forecasts for 2023 and 2024 stay true then the country’s economy will be effectively stagnant for the next two years.
“My best guess is that the economy will be broadly stagnant this year. That we’re not going to get much in the way of growth but we’re not going to have a deep recession either,” Paul Johnson, director of the Institute for Fiscal Studies told the BBC, “now that’s not great, particularly as we should be bouncing back more strongly from COVID-19 and particularly as we’ve not been growing terribly well for the last decade and more.”
UK Chancellor Jeremy Hunt was more optimistic, and said, “short-term challenges should not obscure our long-term prospects – the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”
The UK’s economy has been sluggish for a few years now, particularly since the Brexit referendum. Since then the value of the country’s currency has slashed, and economic growth has been downbeat. The trend was amplified by the COVID-19 pandemic and the Russian invasion of Ukraine. While most advanced economies have managed to reverse their fortunes, the UK appears to still be falling behind.
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