Yahoo Finance UK to be worst-performing economy in G7 this year, IMF says
The UK economy is expected to shrink this year and will be at the back of the leading G7 countries as the International Monetary Fund (IMF) warns a "severe" banking crisis threatens worldwide recession.
The IMF predicts the UK economy will shrink by 0.3% in 2023, before growing by 1% next year.
This would mean the UK economy's performance in 2023 would be the worst of the G7 richest nations. The IMF also sees it as the worst performing of the wider G20 group, which includes sanctions-hit Russia.
The G7 group is made up of Canada, France, Germany, Italy, Japan, the US and the UK.
Read more: FTSE 100 and European markets rise after Easter break
In the World Economic Outlook, chief economist Pierre-Olivier Gourinchas referred to the troubles in the UK pensions market following last September's mini-budget, saying: "The financial instability last fall in the gilt market in the United Kingdom and the recent banking turbulence in the United States with the collapse of a few regional banks illustrate that significant vulnerabilities exist both among banks and non-bank financial institutions.
"In both cases the authorities took quick and strong action and have been able to contain the spread of the crisis so far. Yet the financial system may well be tested again."
IMF Growth Forecast: 2023
USA🇺🇸: 1.6%
Germany🇩🇪: -0.1%
France🇫🇷: 0.7%
Italy🇮🇹: 0.7%
Spain🇪🇸: 1.5%
Japan🇯🇵: 1.3%
UK🇬🇧: -0.3%
Canada🇨🇦: 1.5%
China🇨🇳: 5.2%
India🇮🇳: 5.9%
Russia🇷🇺: 0.7%
Brazil🇧🇷: 0.9%
Mexico🇲🇽: 1.8%
KSA🇸🇦: 3.1%
Nigeria🇳🇬: 3.2%
RSA🇿🇦: 0.1%https://t.co/lvRdo3zKMV pic.twitter.com/mZOsBfCYS5— IMF (@IMFNews) April 11, 2023
IMF forecasts UK inflation to fall by more than half
UK inflation is expected to fall from 9.1% last year to 6.8% this year and 3% in 2024.
Chancellor Jeremy Hunt said: “Thanks to the steps we have taken, the Office for Budget Responsibility says the UK will avoid recession, and our IMF growth forecasts have been upgraded by more than any other G7 country.
“The IMF now say we are on the right track for economic growth. By sticking to the plan we will more than halve inflation this year, easing the pressure on everyone.”
Prices rose unexpectedly in the UK after three consecutive months of slowing, driven by record food costs.
The Office for National Statistics (ONS) calculated inflation at 10.4%, up from January's 10.1%, although it is still down from a 41-year high of 11.1% in October.
The rising cost of food and drinks, clothing and footwear as well as restaurants and hotels were the main factors blamed for the increase.
Meanwhile, the IMF warned that successive interest rate rises, deteriorating financial conditions and the ongoing war in Ukraine mean the world is entering a “perilous phase” with a 15% chance that global growth will come almost to a halt.
Gourinchas said: "We are… entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner.
Read more: UK inflation is 'bad luck', says Bank of England's chief economist
"Below the surface turbulence is building, and the situation is quite fragile, as the recent bout of banking instability reminded us.
"Inflation is much stickier than anticipated even a few months ago. While global inflation has declined, that reflects mostly the sharp reversal in energy and food prices. But core inflation, excluding the volatile energy and food components, has not yet peaked in many countries."
Watch: World economy entering 'perilous phase' with UK to perform worst in G7 this year, IMF says
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