Britain is the one main economic system more likely to slide into recession this yr, the IMF stated on Tuesday, predicting that UK family spending would falter below the burden of excessive vitality costs, rising mortgage prices and elevated taxes.

The fund upgraded its forecasts for many main economies and stated the worldwide outlook had brightened. But it surely recognized the UK as an exception and stated the British economic system would shrink by 0.5 per cent between the ultimate quarter of 2022 and the ultimate quarter of this yr.

Even Russia’s economic system is now more likely to outpace the UK’s, rising 1 per cent this yr, based on the IMF forecasts.

Pierre-Olivier Gourinchas, chief IMF economist, stated the UK might count on a “sharp correction” in 2023, including that the nation confronted “a fairly difficult setting”.

The IMF prediction that UK 2023 output will contract by 0.5 per cent represents a downgrade of its October forecast of 0.2 per cent development for this yr. Against this, the fund upgraded its world financial forecast over the identical interval by 0.5 proportion factors.

Gourinchas stated eurozone economies had been “surprisingly resilient”, whereas the US had a “slender path” to keep away from recession, with inflation falling and solely modest will increase in unemployment.

The IMF additionally thinks Beijing’s determination to ditch its zero Covid coverage will assist China attain 5.9 per cent development by the tip of this yr, greater than double the 2022 charge of two.9 per cent.

UK chancellor Jeremy Hunt stated the IMF forecast confirmed that the UK was “not proof against the pressures hitting almost all superior economies”. He added that Britain outperformed many forecasts final yr and was on monitor to outgrow Germany and Japan in coming years if it met its aim of halving inflation.

However Gourinchas stated UK customers and firms discovered themselves unusually uncovered to excessive vitality costs. He stated debtors would even be hit by increased mortgage charges this yr because the Financial institution of England continued to lift rates of interest to counter inflation that, whereas apparently previous its peak, was nonetheless 10.5 per cent in December.

The Financial institution of England is anticipated to extend rates of interest by 0.5 per cent proportion factors on to 4 per cent on Thursday.

Gourinchas additionally famous difficulties owing to Britain’s labour market. Different European nations have skilled a rise in folks in search of work following the peak of the pandemic — serving to maintain a lid on value will increase and boosting development.

This has not been true to the identical extent of the UK, which has been affected by larger reluctance to return to the labour power in addition to post-Brexit labour shortages.

The BoE is ready to revise its personal forecasts on Thursday, and is more likely to produce estimates near the IMF’s. That will be an enchancment from the awful outlook the central financial institution delivered in early November at a time wholesale fuel costs had been far increased than right this moment.

In November, the BoE forecast that development home product would fall 1.9 per cent between the fourth quarter of 2022 and the equal interval of this yr.

Bar chart of Cumulative growth during 2022 and 2023 showing IMF singles UK out for a large downgrade to economic outlook

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