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Tuesday, March 21, 2023

UK is the Only G7 Economy Predicted to Shrink in 2023

UK's growth downgrade came in the IMF's updates to its semi-annual World Economic Outlook

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Sadaf Hasan
Sadaf Hasan
Aspiring reporter covering trending topics

UNITED KINGDOM: Britain (UK) is anticipated to be the only major industrialised nation to see an economic recession this year because of Liz Truss’s brief tenure as prime minister, which led to a hefty growth downgrade from the International Monetary Fund.

IMF forecasts that the UK economy is likely to contract 0.6% this year

The Washington-based IMF issued a dire warning on Tuesday, saying it expected the UK economy to contract by 0.6% this year, which was 0.9 percentage points worse than what it had projected just three months earlier and slower even than sanctions-hit Russia. 

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This news added to the mounting political pressure on Rishi Sunak following the ouster of Conservative Party Chair Nadhim Zahawi.

The IMF stated that while the outlook for every other member of the G7 group of the top developed countries had improved or remained stable since October, the picture for the UK had been bleaker due to increased interest rates and higher taxes.

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2023 will be “quite challenging” for the UK as it slumped from first to last in the G7 league table, said Pierre-Olivier Gourinchas, the IMF’s economic adviser, adding that “there is a sharp connection.”

Last week, UK chancellor Jeremy Hunt warned that a sense of decline was impeding the UK’s economic recovery and has been under pressure to develop a solid strategy to spur development. Business leaders harshly criticised his speech for lacking any ideas and instead focused on “enterprise, education, employment, and everywhere.”

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The UK’s growth downgrade came in the IMF’s updates to its semi-annual World Economic Outlook (WEO), a health check on the global economy released in April and October.

The October 2022 WEO, which projected growth of 0.3% for 2023, was finished before the tax-cutting mini-budget presented by the then-chancellor, Kwasi Kwarteng, in late September. According to the IMF’s update, the UK outperformed expectations in 2022, rising by 4.1% rather than the 3.6% predicted three months earlier.

However, it claimed that the outlook for 2023 had worsened, with its updated forecast taking into account the higher taxes announced by Hunt after he succeeded Kwarteng, the rise in interest rates from the Bank of England, the stiffer financial conditions for borrowers, and the ongoing high price of energy. On Thursday, the bank is anticipated to increase interest rates from 3.5% to 4%.

As per Treasury sources, the IMF’s emphasis on the high rate of inflation made it even more important to address the UK’s cost of living crisis. The IMF and the Organization for Economic Cooperation and Development had both given predictions for Britain in 2021, they added.

In reaction to the IMF predictions, Hunt stated, “These data suggest we are not immune to the pressures hitting nearly all advanced economies, although any UK recession this year is likely to be smaller than previously expected.”

Hunt, whose strategy for growth entails developing the UK’s equivalent of California’s Silicon Valley, continued, “Short-term challenges should not obscure our long-term prospects. The UK exceeded many expectations in terms of performance last year, and if we keep to our aim to halve inflation, the country is still expected to develop more quickly than Germany and Japan in the years to come.”

The IMF predicts that global growth will be 2.9% this year overall, 0.2 points more than expected in October, but the outlook for 2024 has been cut down by 0.1 points to 3.1%.

Also Read: Joe Biden Accused of ‘Hypocrisy’ as He Seeks Extradition of Julian Assange 


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