Minister dismisses IMF warning that the UK economy is set for sharp contraction as ‘wrong’

The UK is ready to be the world’s worst-performing large financial system this 12 months, in keeping with the Worldwide Financial Fund (IMF).

In its newest World Financial Outlook replace, the IMF downgraded its UK GDP forecast, predicting a contraction of 0.6 per cent. The brand new outlook for the 12 months places the UK behind its counterparts within the G7 group of countries and the one nation, throughout superior and rising economies, anticipated by the IMF to endure a 12 months of declining GDP.

Among the many different G7 nations, the IMF’s 2023 GDP predictions present development of 1.4 per cent within the US, 0.1 per cent in Germany, 0.7 per cent in France, 0.6 per cent in Italy, 1.8 per cent in Japan and 1.5 per cent in Canada.

The IMF mentioned that whereas the broader world financial system was doing higher than anticipated, with inflation having peaked and funding starting to show round, the UK financial system would face a downgrade “reflecting tighter fiscal and financial insurance policies and monetary situations and still-high power retail costs weighing on family budgets”.


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The IMF’s prediction of a contraction of 0.6 per cent this 12 months is a reassessment from October, when it was mentioned that the UK might face 0.3 per cent of development.

“Hostile dangers have moderated because the October [forecast]”, the IMF mentioned. “On the upside, a stronger increase from pent-up demand in quite a few economies or a quicker fall in inflation are believable. On the draw back extreme well being outcomes in China might maintain again the restoration, Russia’s conflict in Ukraine might escalate and tighter world financing situations might worsen debt misery.”

Requested on Sky Information this morning whether or not the federal government recognised the brand new IMF prediction, highway and native transport minister Richard Holden prompt that the forecast might be “fallacious”.

He mentioned: “In case you look into the IMF report in addition they praised what the federal government has finished over the previous few months with Jeremy and Rishi coming in, serving to stabilise the state of affairs. What we even have seen in the previous few months is that really the UK’s outperformed the IMF’s predictions for final 12 months and the OECD’s predictions and the 12 months earlier than. Since 2016, we’ve fragrance higher than Germany, for instance.

“I’m thinking about outcomes”, Mr Holden added. 

When it was put to the minister that the IMF had concluded that the UK’s financial system is worse than Russia, Mr Holden mentioned: “the proof might be within the pudding”.

Requested once more whether or not the IMF had “bought it fallacious”, he continued: “I feel so. The IMF has additionally modified its thoughts on a few of these facets earlier than. And the figures have proven that the IMF had been fallacious”.

Mr Holden additionally mentioned the UK has outperformed German and Japan over the previous few years.

Responding to the IMF figures, Labour’s shadow chancellor Rachel Reeves MP, mentioned there have been too many indicators that Britain was “lagging behind our friends”.

Ms Reeves mentioned: “The federal government must be doing all it might probably to make our financial system stronger and to get it rising. It’s the solely method that we are able to transfer past lurching from disaster to disaster as we’ve been for much too lengthy”.

Chief economist for the IMF, Pierre-Olivier Gourinchas, defined there have been three main components motivating the UK’s financial outlook.

He mentioned: “First, there’s publicity to pure fuel… we’ve had a really sharp improve in power costs within the UK. There’s a bigger share of power that’s coming from pure fuel, with the next pass-through to ultimate customers.

“The UK’s employment ranges have additionally not recovered to pre-pandemic ranges. This can be a state of affairs the place you could have a really, very tight labour market however you could have an financial system that has not re-absorbed into employment as many individuals because it had earlier than. Meaning there’s much less output, much less manufacturing.

“The third is that there’s a very sharp financial tightening as a result of inflation has been very elevated, that’s a aspect impact of this excessive pass-through of power costs.

“Inflation was 9.1 per cent final 12 months, and it’s anticipated to truly stay fairly excessive on this coming 12 months at 8.2 per cent (so) the Financial institution of England has began tightening.

“The UK has a reasonably excessive share of adjustable price mortgages. So when the Financial institution of England begins growing charges, it feeds into the mortgage charges that mortgage holders are paying, and that’s additionally weighing down financial exercise”.