The UK is expected to experience the slowest growth in the G7 next year, according to new projections by the International Monetary Fund (IMF).
The UK economy is now expected to grow by just 1.2 per cent in 2023, compared with 2.5 per cent forecast for the EU and the 2.3 per cent for the US.
Rising consumer prices and tighter financial conditions have contributed to a 1.1 percentage point downgrade in the UK’s expected growth next year, compared with projections made before Russia invaded Ukraine. The war has exacerbated supply constraints in the global economy, raising commodity prices and eroding real incomes.
Those inflationary pressures are expected to last far longer in the UK than in other advanced economies. Consumer prices are now expected to rise by 5.3 per cent in 2023, compared to the 2.9 per cent forecast for the EU.
Efforts to clamp down on inflation by raising interest rates could deal another significant blow to growth, however, owing to many UK households’ high level of debt.
Average monthly loan repayments reached £373 last year, up 22 per cent since 2020 and the highest figure for at least a decade, while an estimated 1.3 million households fell into debt-related financial hardship. The IMF report points out that other countries, such as France and Italy, avoided pandemic-related increases in debt among low-income households through more extensive government income support.
The UK’s economic growth is expected to rise to 1.5 per cent in 2024 and 2.2 per cent in 2025, before declining again to 1.8 and 1.5 per cent over the following two years. Inflation is expected to stabilise at close to the Bank of England’s 2 per cent target from 2024.
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