IMF cuts UK GDP forecast to 0.6% this year

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Growth or lack of it is the main issue today after the International Monetary Fund released its latest economic forecasts overnight and as we wait for eurozone GDP figures this morning.

The IMF stated that the UK is the only advanced economy that is expected to fall into recession this year.

UK GDP is predicted to shrink by 0.6% this year, the worst prediction for any G 7 country this year, which is a 0.9 percentage point downward revision from October's forecasts.

The IMF blamed the downgrade on tighter government spending policies and higher interest rates, which may be raised on Thursday and the burden of still high energy retail prices on household budgets.

Pierre-Olivier Gourinchas, the IMF's economic counsellor, said 2023 would be quite challenging for the UK as it fell from top to bottom of the G 7 league table.

The move adds pressure on UK chancellor Jeremy Hunt, who is facing calls from business groups for a more ambitious growth strategy and demands from some Conservative MPs for tax cuts.

The IMF said that this contraction would be followed by 4.1% growth in 2022, one of the fastest growth rates in advanced economies last year.

The IMF says that the global growth for the world economy will slow from 3.4% in 2022 to 2.9% in 2023, an improvement on its previous forecast of 2.7%.

The IMF s Pierre-Olivier Gourinchas says that China's sudden re- opening paves the way for a rapid rebound in activity.

The global economy is poised to slow this year, before rebounding next year. The fight against inflation and Russia's war in Ukraine will weigh on activity, and growth will remain weak by historical standards. The outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining. In the third quarter of last year, economic growth was surprisingly resilient, with strong labor markets, robust household consumption and business investment and better than expected adaptation to the energy crisis in Europe. Inflation showed improvement, with measures now decreasing in most countries, even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.

Yesterday, we learned that Germany's GDP shrank by 0.2% in Q 4, putting Europe's largest economy at risk of a winter recession.