The International Monetary Fund (IMF) has warned that a new financial crisis might impede the global recovery and that the UK economy will decrease this year, falling behind the top G7 nations.
The Washington-based agency highlighted the UK and euro area as being especially hit by increasing energy prices and greater inflation, underlining the mounting dangers of a harsh landing for developed economies.
The IMF increased its forecast for UK growth this year from -0.6% to -0.3% three months ago, although the economy is still anticipated to decline.
'Easing the Pressure'
In a report by The Guardian, UK Chancellor Jeremy Hunt said the nation had received more upgrades from the IMF than any other G7 countries. "The IMF now [says] we are on the right track for economic growth. By sticking to the plan, we will more than halve inflation this year, easing the pressure on everyone."
Hunt's Labour Party colleague, Rachel Reeves, reportedly criticized the IMF projections as evidence that the UK was behind the rest of the developed world.
The shadow chancellor said this concerns not only because 13 years of sluggish growth under the Conservatives are damaging the economy but also because it is the reason why households are worse off, suffering a Tory mortgage penalty and seeing living standards decreasing at the quickest pace since records started.
No Sign of Relief
Although the UK had the fastest-growing economy in 2022, the IMF projects that its gross domestic product (GDP) would decrease along with Germany's in 2023.
According to Pierre-Olivier Gourinchas, the fund's economic counselor, the annual inflation rate in the UK has reached 10.4%, and there is no sign of relief in sight. Instead, growth is expected to increase by only 1% next year when a general election is scheduled to be held.
Gourinchas predicted a recession in 2023 due to growing energy costs, monetary policy tightening, and financial difficulties. "Our overall assessment is that this is going to be a challenging year for the UK, but growth is going to increase in 2024."
The IMF expects global growth to fall from 3.4% in 2022 to 2.8% this year, with the danger of a steeper slowing if last month's troubles impacting smaller US institutions like collapsed Silicon Valley Bank and Switzerland's newly rescued Credit Suisse are indicative of a wider malaise.
The world economy suffered losses due to the global pandemic and Russia's invasion of Ukraine, but according to Gourinchas, things seem to be slowly picking back up.
While he acknowledged that higher interest rates might reveal fundamental flaws in the financial system, he said the IMF supported central banks in their drive to bring inflation back down from the highest level in four decades.
Even while the IMF expects global growth to pick up to 3% in 2024, it warned that its projections for the years ahead were much lower than it had anticipated in January 2022, a month before Russia's invasion of Ukraine.
