The UK economy is set to perform worse than in any other developed country in 2023 as the cost of living crisis continues to hit struggling households. The International Monetary Fund (IMF) said the economy would shrink by 0.6% this year, rather than grow slightly as previously predicted.
The figures come as part of the IMF’s World Economic Outlook update, which works to stabilise economic growth. It said the UK’s Gross Domestic Product (GDP) would contract rather than grow by 0.3% in 2023.
It also predicted the UK would be the only country across all other major nations to suffer a year of declining GDP, reflecting the UK’s high inflation rates and rocketing energy prices. GDP is a measure for looking at how well an economy is doing and in a growing economy, each quarterly GDP will be slightly bigger than the quarter before.
If a country’s GDP falls for two quarters in a row, it means it is in recession - a sign that its economy is slipping as companies make less money and the number of people in employment rises. Pierre-Olivier Gourinchas, IMF chief economist, told BBC News that in 2022, the UK had had "fairly robust" growth at 4.1%, which was "one of the strongest growth numbers in Europe".
"But it is true that we are forecasting a sharp slowdown in 2023, with growth that would turn even negative for the year”, he added. Mr Gourinchas said there was currently a “very challenging environment” in the UK which was caused by high energy prices as well as a “high dependence on liquid natural gas”.
Another factor in the UK’s forecast is that employment was still below pre-pandemic levels. However, Mr Gourinchas believed that plans outlined by the Treasury in the Autumn Statement showed the UK was “certainly trying to carefully navigate these different challenges and we think they are on the right track”.
The IMF said that in 2024 it expected UK economic growth to be 0.9%, up from -0.6% in 2023. Elsewhere, after China’s decision to open up its economy by ditching its zero-COVID policy, the IMF upgraded its GDP projection from 4.4% to 5.2% this year.
It said the US would grow by 1.4%, rather than its previous projection of 1%. Germany, which was previously forecast to shrink by 0.3%, is now slated to grow by 0.1%.
Despite facing sanctions from most of the West over the ongoing war in Ukraine, Russia’s economy is projected to grow by 0.3%.