The International Monetary Fund (IMF), under the oversight of research director Pierre-Olivier Gourinchas, has revised the UK's economic growth forecast for 2024 downwards to 0.6% on Tuesday. The revision positions the UK as the worst-performing economy in the G7, largely due to the strain of high inflation and increased interest rates on households and businesses.
The IMF attributed this decline to the tightening of monetary policies aimed at controlling inflation, coupled with the negative impact of soaring energy prices. The revised forecast was initially premised on UK interest rates reaching 6%, a scenario now deemed unlikely.
Despite these challenges, economies such as the US, Germany, France, Russia, and Ukraine are projected to outperform the UK. The IMF also anticipates a global GDP increase of 3% this year and 2.9% next year, despite divergences in economic performance across countries.
While acknowledging the impact of challenges such as Russia's invasion of Ukraine and a cost-of-living crisis, Gourinchas noted that global economic activity has slowed but not stalled. He highlighted the resilience of the global economy, which he described as "limping along".
In contrast to its gloomy forecast for 2024, the IMF has upgraded its growth prediction for the UK thrice this year, revising its GDP growth estimate from 0.4% to 0.5%. However, it warns of "structural" borrowing that could reach approximately £90bn or 3.5% of GDP by 2028.
This warning indicates potential future spending cuts or tax increases, presenting a significant challenge for Chancellor Rishi Sunak and Jeremy Hunt. Both are under pressure from Tory MPs to reduce taxes while striving to meet two fiscal targets, including Sunak's goal to halve the headline rate.
The IMF also predicts the UK's Consumer Price Index (CPI) inflation to peak at 7.7% this year before sharply declining to 3.7% next year. In contrast, Canada is expected to lead G7 growth with a rate of 1.6%.
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