UK to be second-worst G7 economy in 2023 despite major upgrade to country's prospects, IMF says

The UK is forecast to be the second slowest-growing economy in the G7 this year, the International Monetary Fund has said, despite it upgrading the country's prospects.

The IMF expects the UK’s output to grow by 0.4% during 2023, more than Germany, but slower than any other country in the group, which includes the US, Japan, Italy, France and Canada. It is an upgrade by 0.7 percentage points compared to the IMF’s previously gloomy forecast, as consumption was stronger than expected and Brexit uncertainty had reduced.

Growth in the US is expected to be the most rapid of all G7 countries at 1.8%. This will be followed by Canada (1.7%), Japan (1.4%), Italy (1.1%), France (0.8%), the UK (0.4%) and Germany, where output is expected to shrink 0.3%. Across all advanced economies, which includes the G7 and other countries, growth is expected to drop from 2.7% to 1.5% in 2023, the IMF said.

“Growth in the United Kingdom is projected to decline from 4.1% in 2022 to 0.4% in 2023, then to rise to 1.0% in 2024,” the IMF said.

“This is an upward revision of 0.7 percentage points for 2023, reflecting stronger-than-expected consumption and investment from the confidence effects of falling energy prices, lower post-Brexit uncertainty (following the Windsor Framework agreement), and a resilient financial sector as the March global banking stress dissipates.”

It is the latest in a series of IMF forecasts which expect the UK to lag behind many international peers this year. But the government has previously pushed back against this, with Chancellor Jeremy Hunt being overheard by Sky News in April telling IMF boss Kristalina Georgieva that “we’re very focused on proving you wrong”.

The Treasury said today (25 July): “The IMF have praised the UK’s decisive action to fight inflation, and today’s report confirms a big upgrade to our growth forecast compared to April, with the UK set to grow at the same rate as the United States and Japan next year.

“The IMF also say it’s important to rebuild our finances and maintain financial stability; that’s why we have a clear plan to halve inflation this year, grow the economy and get debt falling.”

Earlier in the year, the Organisation for Economic Co-operation and Development (OECD) found the UK's economy was going to be the second weakest in the G20, only stronger than Russia.

What is the IMF?

It's not Ethan Hunt's Impossible Mission Force, the IMF is an international organisation that is governed and made accountable to 190 member countries. It is led by Kristalina Georgieva, an economist who previously led the World Bank.

Member countries pay a fee to be a part of the IMF, with richer countries paying in more. States must also abide by rules governing how transparent they are about their economies. The IMF’s main goal is to ensure “sustainable growth and prosperity” in these nations. Part of what it does is to discourage states from pursuing policies that would be harmful to prosperity.

The IMF monitors all of the world’s economies, providing advice for how they can perform to the best of their abilities, and also tracks potential global economic issues, like trade disputes. Another role it plays is as a lender of last resort for countries whose economies get into a nosedive they cannot pull out of. When this scenario happens, the IMF can loan up to $1 trillion to allow these countries to restructure their economies and their sovereign debt.

Low-income countries pay no interest on these loans. The largest amount the IMF has paid out to a member has been the $57 billion (£53.4 billion) it lent to Argentina in 2018.

While the organisation has had success in the past by getting Mexico and Brazil through their respective economic crises, it has been criticised for being too heavy-handed in other situations. For example, when Greece’s economy collapsed in 2009, the austerity measures it demanded the country introduce were deemed to have damaged the Greek economy and its society.

What else did the IMF say?

On Tuesday, the IMF said that most of the countries in the world are prioritising attempts to reduce inflation. “Following the build-up of gas inventories in Europe and weaker-than-expected demand in China, energy and food prices have dropped substantially from their 2022 peaks, although food prices remain elevated,” it added.

The IMF also said that a push on green investment was needed to make sure that there is enough energy to meet countries’ green targets. This comes after the government briefed out that Sunak was reconsidering a raft of net zero measures.

IMF director of research, Pierre-Olivier Gourinchas, said: “The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine. “In the near term, the signs of progress are undeniable.

“The Covid-19 health crisis is officially over, and supply-chain disruptions have returned to pre-pandemic levels. Economic activity in the first quarter of the year proved resilient, despite the challenging environment, amid surprisingly strong labour markets.

“Energy and food prices have come down sharply from their war-induced peaks, allowing global inflation pressures to ease faster than expected. And financial instability following the March banking turmoil remains contained thanks to forceful action by the US and Swiss authorities.”