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IMF slashes UK growth forecasts as inflation slows economy

·2-min read
IMF managing director Kristalina Georgieva (AFP via Getty Images)
IMF managing director Kristalina Georgieva (AFP via Getty Images)

The International Monetary Fund (IMF) slashed its growth forecasts for Britain today as it warned inflation will hit spending and investment.

In its latest quarterly report on the world’s economy, the IMF cut its forecast for UK GDP growth this year by one percentage point to 3.7%.

“Consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment,” the organisation said.

The IMF cut its forecast for global growth from 4.4% to 3.6%, saying conditions have “worsened significantly” since its last update in January.

The downgrade came a day after the World Bank slashed its global growth forecast as rising interest rates, soaring inflation, continued Covid-19 infections and war in Ukraine drag on global growth. The World Bank downgraded its forecast from 4.1% to 3.2%.

David Malpass, head of the World Bank, said inflation was causing “immense strain” and warned of a growing debt crisis among developing countries.

Chief economist Carmen Reinhart said the world was passing through a period of “exceptional uncertainty” and said further downgrades could be made.

The IMF said the economic effects of the war in Ukraine were “like seismic waves that emanate from the epicentre of an earthquake.”

Sophie Lund-Yates at Hargreaves Lansdown said: “There are growing concerns of recessions. Rising interest rates at a time when economic activity is slowing down make for very difficult conditions, which aren’t lost on the financial world.”

Two surveys of British businesses found a record number of bosses are worried about inflation. Some 98% of finance bosses surveyed by Deloitte expect costs to rise this year, with seven in 10 fearing profits will be squeezed.

BDO said half of the 500 businesses it surveyed said rising costs were their biggest problem. A third are cutting back to save money and another third are switching to cheaper alternatives.

Ian Stewart, chief economist at Deloitte, said: “Rising geopolitical risk in the wake of the invasion of Ukraine and alongside high inflation mean that the external challenges faced by business are greater today than at any time in the last eight years.”

BDO’s Ed Dwan said: “This is a deeply concerning time for UK businesses, with inflation and global uncertainty all threatening to stifle the post-pandemic recovery.”

Elsewhere, Chinese GDP data published on Monday showed the world’s second biggest economy fared better than expected at the start of the year, with quarterly growth of 4.8%.

But Covid-19 lockdowns at the end of the period led to a slowdown and prompted banks to cut their forecasts for 2022 as a whole. Barclays, UBS and Standard Chartered all announced downgrades.

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