UK set to record weakest economic growth in G7 as IMF forecasts 0.6% growth

10 October 2023 , 14:16

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The IMF's forecast is a gloomy one for the UK economy. (Image: PA Archive/PA Images)

The International Monetary Fund (IMF) has predicted that the UK will experience the weakest economic growth among the G7 group of advanced economies next year. The IMF has stated that due to persistent inflation concerns, UK interest rates are likely to remain high for "a little while longer", extending into next year at least.

This announcement comes as officials at the finance body describe the global economy as "limping along" under the strain of persistent inflation and increased borrowing costs in its most recent economic outlook.

In a fresh evaluation of the UK economy, the IMF has slightly upgraded its growth forecast for the UK's gross domestic product (GDP) this year from 0.4% to 0.5%. This would place the UK second to last in terms of performance among the G7, with Germany trailing behind, according to the United Nations' financial agency.

However, the IMF has downgraded its predictions for the UK's economic growth for next year. Previously, it had indicated a 1% growth for 2024, but on Tuesday, this forecast was reduced to 0.6% due to the pressure from higher interest rates. This would be the lowest growth rate across all of the G7, while Canada is expected to see the strongest growth, at 1.6%.

In its report, the IMF stated: "The decline in (UK) growth reflects tighter monetary policies to curb still-high inflation and lingering impacts of the terms-of-trade shock from high energy prices."

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The Bank of England's base interest rate currently stands at 5.25%, following the decision by policymakers to maintain this level last month.

Chancellor of the Exchequer, Jeremy Hunt, commented: "The IMF have upgraded growth for this year and downgraded it for next but longer term they say our growth will be higher than France, Germany or Italy."

"To get there we need to deal with inflation and do more to unlock growth which I will be focusing on in the upcoming Autumn Statement."

Pierre-Olivier Gourinchas, IMF director of research, provided his thoughts, saying: "The general perspective on the UK is that we have relatively subdued growth, we have falling momentum and we have a labour market which is cooling but inflation remains quite persistent."

"That is going to require monetary policy to remain tight for a little while longer into next year."

According to the latest forecast, Global GDP is anticipated to increase by 3% this year and 2.9% the following year.

The prediction for 2023 remained unchanged from the organisation's previous forecast in July, while the forecast for 2024 saw a slight decline of 0.1 percentage point.

Mr Gourinchas further added: "The global economy continues to recover from the pandemic, Russia's invasion of Ukraine and the cost-of-living crisis. In retrospect, the resilience has been remarkable."

"Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled."

"Even so, growth remains slow and uneven, with widening divergences. The global economy is limping along, not sprinting."