Britain faces slower economic growth and more persistent inflation than any other major economy next year, the International Monetary Fund predicted on Tuesday as part of a broader downgrade to the outlook for global growth.
The IMF has warned that Russia’s invasion of Ukraine is amplifying inflationary pressures already present in Western economies, compressing living standards and growth.
“Consumption is expected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions should cool investment,” the IMF said of Britain.
The IMF has cut its forecast for UK gross domestic product growth this year to 3.7% from January’s forecast of 4.7%, while for 2023 the growth rate has almost halved from 2.3% to 1.2%.
Growth projected for Britain next year is lower than any other major advanced economy and lower than the 1.8% predicted last month by the UK Office for Budget Responsibility.
IMF Chief Economist Pierre-Olivier Gourinchas said the downgrade reflected “high inflationary pressures” and tighter monetary policy, while Petya Koeva Brooks, IMF deputy director, pointed to a “shock of major supply” due to rising energy prices.
UK inflation hit a 30-year high of 7% last month and the IMF expects it to average 7.4% this year – slightly lower than in the US and higher than in the zone euro.
Next year, inflation is expected to slow much more slowly than in any other major economy, averaging 5.3%, compared to 2.9% in the United States and 2.3% in the eurozone.
Britain, like the United States, has also seen a decline in the number of older workers since the pandemic, creating labor shortages, the IMF added.
As part of general advice to central banks, the IMF said they should communicate clearly what they believe to be a “neutral” interest rate, as well as their willingness, if necessary, to keep rates above this level to lower inflation.
The Bank of England said Britain’s neutral rate was lower than it was before the 2008 financial crisis, but it was not possible to give a precise range.
Financial markets expect the BoE to hike interest rates to 2.25% by the end of the year from 0.75%, although policymakers have previously hinted that the magnitude tightening would lead to inflation falling below its medium-term target of 2%.
The IMF also said governments could offer support to households facing steep price hikes, but should focus on the poorest households.
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Source: www.independent.co.uk
This notice was published: 2022-04-19 23:37:23
