The UK economy is expected to shrink by 0.3% in 2023, according to global experts.
The International Monetary Fund (IMF) has just released its forecast for the year ahead, and it put the UK at the bottom of the G7 economies in terms of growth.
That means it’s behind the world’s other major economies, including the US, Germany, France, Italy, Canada and Japan. Out of these seven, only the UK and Germany are expected to shrink in the coming year.
The IMF also sees the UK as one of the worst performing of the G20 nations – a larger group which includes Russia (which has a long list of sanctions against it at the moment), China and India.
This unfortunate prediction is not a complete surprise, though.
The IMF already suggested the UK would not fare well in the coming years, as did OECD (Organisation for Economic Co-operation and Development), which said that the UK’s GDP would fall by 0.2% this year.
However, the IMF’s figures do offer a glimmer of hope, because its forecast for the UK is actually an increase from previous predictions when it thought the UK would shrink by 0.6%.
And, the UK’s GDP (gross domestic product) should climb to 1% next year though.
The IMF has also downgraded all of its predictions for global growth this year, noting that the fund is at its weakest level since its forecasts were first published back in 1990.
Now, it thinks the global economic growth will decline from 3.4% in 2022 to 2.8% in 2023, before increasing gradually settling at 3% in 2028.
Chief economist Pierre-Olivier Gourichas said: “We are... entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner.”
He claimed that “turbulence is building” beneath the surface, meaning the “situation is quite fragile”.
The collapse of the Silicon Valley Bank in the UK and Credit Suisse in Europe shocked international markets, while the UK’s mini-budget last Autumn brought major disruption to the UK economy.
Referring to these two crises, Gourichas said: “In both cases the authorities took quick and strong action and have been able to contain the spread of the crisis so far. Yet the financial system may well be tested again.”
The UK’s struggle to cope with high gas prices, triggered by the Ukraine war, surging interest rates and slow trade were mentioned, too.
“Inflation is much stickier than anticipated even a few months ago,” Gourichas explained. “While global inflation has declined, that reflects mostly the sharp reversal in energy and food prices.
“But core inflation, excluding the volatile energy and food components, has not yet peaked in many countries.”
UK inflation is currently at a 40-year-high, at 10.4% in February.
The IMF also predicted there was a one in four chance of global growth dipping below 2% this year. That’s similar to the levels we have to see for there to be a global recession, as seen in 2009, after the financial crash, and 2020, during global Covid lockdowns.
The IMF also said low productivity and ageing populations should also bring real interest rates down to pre-pandemic levels – British interest rates are currently at 4.25%.