On the train home on Monday, I was expecting that the following day I would be writing about the sacking of Nadhim Zahawi as chair of the Conservative party, a story which had dominated headlines. However, news broke on Tuesday morning that according to the International Monetary Fund (IMF), Britain will be the only leading economy likely to slide into recession this year.
The fund upgraded its forecasts for most leading economies slightly due to “surprisingly resilient” demand in the United States and Europe and the reopening of China’s economy. Worryingly for the government, it identified the UK as an exception and said the British economy would shrink by 0.5 per cent between the final quarter of 2022 and the final quarter of this year.
Most damning of all is that Russia’s economy is now likely to outpace the UK’s, growing 1 per cent this year.
The forecast went on to say that Britain would struggle with a combination of factors including higher taxes announced by Jeremey Hunt last year, high energy prices and rising mortgage costs.
Pierre-Olivier Gourinchas, the IMF’s chief economist, also said that UK gas been hit particularly hard by the impact of the surge in gas prices after Russia’s invasion of Ukraine, and shortages of workers which was holding back the economy.
Government ministers were quick to dismiss the bleak announcement. Speaking to Sky News, Richard Holden, a transport minister, said he believed the UK can “outperform” the IMF’s predictions arguing that ultimately the “proof will be in the pudding”. He also noted that the IMF has proven to be wrong in the last two years.
In the wake of the news, Chancellor Jeremey Hunt said the forecast showed that the UK was “not immune to the pressures hitting nearly all advanced economies.” Shadow Chancellor Rachel Reeves tweeted “Britain has so much potential, but we’re being held back and lagging behind” noting that “only Labour has a proper plan for growth”.
The public will be wondering why the UK has come out especially badly this time. Well, one main factor is that the last forecast did not reflect the impact of the mini budget, which could explain the UK’s “stand out” downgraded figures.
Interestingly, the IMF report makes no mention of Brexit, however the FT have pointed to the fact that post-Brexit labour shortages following the pandemic have meant the UK has trailed behind other European countries, who are seeing an increase in people seeking work. This gives added weight to the Brexit impact argument.
Then there’s the investment issue – while other countries are spending big on green energy, Sunak’s government has just slashed public investment totals.
The reality is that other countries are just bouncing back faster than the UK. Overall, it’s a horrible cocktail of factors which leaves the UK in the “relegation zone” and only time will tell whether the predictions prove accurate.