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The UK economy will likely record the weakest performance this year among the advanced nations. The IMF (International Monetary Fund) has warned that rising living costs could subject the UK economy to a reverse. In any case, the IMF downgraded Britain’s GDP (Gross Domestic Product) forecast, which predicted a 0.6% contraction against the 0.3% growth report in October 2022.
The UK economy is struggling with higher interest rates and soaring inflation. Yet, the IMF raised its growth forecast in 2024 from 0.6% to 0.9%. The recent UK economic outlook places the country far behind other G7 nations. It is the only economy among emerging and advanced economies the IMF announced will likely suffer a declining GDP through 2023.
Meanwhile, the IMF predicted a 1.5% growth in Canada, 1.8% in Japan, 0.6% in Italy, 0.7% in France, 0.1% in Germany, and o.1% in the United States. The explanation is that the UK inflation rate is still over 10%, with a likely recession and a backdrop of public sector protests. Other factors contributing to the fall in the UK GDP include still-high energy retail prices and tighter financial, monetary & fiscal policies.
In the meantime, the UK finance minister raised the country’s growth forecast from 2.7% to 2.9% after China eased its Covid-19 restrictions. But the IMF warns that the Europe and UK approach to curb the rising inflation rate and surging prices will continue to hamper the economy. It believes the condition will improve only after the cooldown on interest rate hikes slows price rises in 2024. Generally, the IMF reports that global inflation has attained its peak and will fall to 6.6% from 8.8% by next year.
The Bank of England will continue to tighten borrowing costs as they expect the UK inflation rate to remain relatively high at 8.2% from 9.1% in 2022. The UK economy features a relatively high adjustable mortgage rate on shares. Thus, when the Bank of England raises interest rates, it feeds into the mortgage rates, which weighs on the economy. The bank had predicted a shallower recession, but public figures indicate the economy will encounter pressures.
Above all, short-term issues will not obscure the country’s long-term plans. Remember that the UK outperformed several economic forecasts in 2022. Therefore, if all the stakeholders stick to the strategy of halving inflation, the UK economy might still grow faster than that of Japan & Germany. Nonetheless, the UK employment levels are still surging since the pandemic. It has resulted in a tight labor market, less production, and less output.