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IMF cuts UK growth forecast amid rising inflation and Omicron threat

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·Business Reporter, Yahoo Finance UK
·3-min read
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IMF: UK economic growth cut amid rising inflation and Omicron threat
Gita Gopinath, first deputy managing director at the IMF: 'We do think that very targeted support to highly vulnerable households who are having to face very high living cost increases will be useful.' Photo: IMF

The UK economy is set to grow more slowly than initially forecast this year as it continues to recover from the coronavirus pandemic.

The International Monetary Fund (IMF) revealed on Tuesday that growth for 2022 has been cut to 4.7%, down from a previous 5%.

“In the United Kingdom, disruptions related to Omicron and supply constraints — particularly in labour and energy markets — mean that growth is revised down,” the IMF said.

Despite the decline, Britain is set to be the fastest growing economy in the G7 industrialised nations for a second consecutive year. This means the UK is anticipated to grow faster than the US, Japan, Germany, France, Italy and Canada.

The Washington-based group also expects UK gross domestic product (GDP) to come in at 2.3% in 2023, ahead of the 1.9% prediction made in October.

However, the IMF warned that the emergence of new COVID-19 variants could “prolong the pandemic and induce renewed economic disruptions”.

It further warned that soaring inflation will last for longer than first thought.

It estimates that the rising cost of living will not subside until 2023, averaging 3.9% in advanced economies worldwide, and 5.9% in emerging market and developing economies in 2022.

Speaking at a press conference on Tuesday, Gita Gopinath, first deputy managing director at the IMF, said: “We do think that very targeted support to highly vulnerable households who are having to face very high living cost increases will be useful."

It comes after official data showed that the UK economy returned to pre-pandemic levels in November, although this was before the full impact of Omicron.

On Tuesday, the IMF added that the overall global economy came in at a weaker position than previously expected thanks to the spread of the new Omicron variant and tightened restrictions.

Rising energy prices and supply chain disruptions also resulted in higher, and more broad-based inflation than anticipated.

Watch: What is inflation and why is it important?

Global growth is expected to moderate from 5.9% in 2021 to 4.4% in 2022 — half a percentage point lower for 2022 than in the October World Economic Outlook (WEO), largely reflecting forecast markdowns in the two largest economies, the US and China.

The former was downgraded from 5.2% growth to 4%, due to tighter monetary policy, while the latter is expected to slow from 5.6% to 4.8% following financial turmoil from property developers.

“Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the US and many emerging markets and developing economies, it said.

"And the ongoing retrenchment of China's real estate sector and slower-than-expected recovery of private consumption have limited growth prospects."

Brazil and Mexico also suffered the largest growth downgrades.

Read more: UK borrows less than expected in December as COVID impact eases

In its update, the IMF also called for more equal vaccine coverage, saying that the fully vaccinated share of the population was around 70% for high-income countries, but below 4% for low-income countries.

It set a target of vaccinating 40% of the world’s population by the end of 2021, however this was missed in 86 countries.

“With the pandemic continuing to maintain its grip, the emphasis on an effective global health strategy is more salient than ever. Worldwide access to vaccines, tests, and treatments is essential to reduce the risk of further dangerous COVID-19 variants.”

Watch: IMF takes axe to global growth forecasts as Omicron and inflation hit recovery

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