UK Chancellor of the Exchequer Jeremy Hunt. file | Photo Credit: Reuters
Britain is the only Group of Seven nation to face a cut in its economic growth outlook to 2023 International Monetary Fund forecast published on Tuesday, adding to the pressure on Finance Minister Jeremy Hunt to come up with a growth plan.
Britain’s faltering economy now looks set to shrink 0.6% this year, a sharp decline from the 0.3% growth previously expected in the IMF’s previous forecast for October.
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All other G7 economies are predicted to grow this year, mostly at a faster pace than the IMF forecast three months ago.
The IMF said Britain would struggle with a combination of factors including higher taxes announced by Mr Hunt late last year as he tried to restore investor confidence after September’s “mini-budget” of former prime minister Liz Truss .
The UK was particularly hard hit by the subsequent jump in gas prices. Russia’s invasion of Ukraine The IMF said that since it relied on gas for most of its electricity generation, it also faced a labor shortage, which was stalling the economy.
It will also suffer losses from a sharp increase in interest rates by the Bank of England to try to offset risks from a jump in inflation.
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“All these factors taken together suggest a much sharper reduction in activity in 2023,” IMF chief economist Pierre-Olivier Gaurinchas told reporters.
In contrast, the UK is expected to record the highest growth rate among European countries at 4.1% in 2022, Mr Gourinchas said.
Petya Koeva-Brooks, deputy director of the IMF’s research department, said Britain has a higher share of variable-rate mortgages than countries such as the United States.
“So again, the transmission of monetary policy is much more immediate and quick,” she said.
Britain is the only economy in the G7 not to return to its pre-pandemic size with Brexit widely seen as a unique drag among its peers.
Responding to the IMF report, Mr Hunt said almost all advanced economies were facing headwinds, and previous forecasts from several bodies, including the IMF, had proved too pessimistic about Britain’s prospects.
“Short-term challenges should not obscure our long-term prospects,” he said.
Mr Hunt is due to announce measures expected to spur growth in a budget statement on 15 March. Many senior members of the ruling Conservative Party want him to cut taxes immediately.
Last week, Mr Hunt indicated he would stick to his tax hike, but said Brexit would help Britain become a leader in fast-growing sectors such as digital technology and green energy, while labor market reforms would also boost growth. .
For 2024, the IMF predicted the UK economy would grow 0.9%, an increase of 0.3 percentage points from its October forecast, but still joint-slowest in the G7 alongside Japan and Italy.