UK to be only major economy to shrink in 2023, IMF predicts

The International Monetary Fund (IMF) has predicted the UK economy will be the only advanced economy to shrink in 2023 – performing worse than all other major economies including Russia, as the cost of living continues to hit hard. 

The IMF said the economy will contract by 0.6% in 2023 rather than grow slightly as previously predicted.

But the IMF has also said it thinks the UK is now “on the right track.” 

Chancellor Jeremy Hunt said the UK outperformed many forecasts last year. 

The IMF said the UK’s high energy prices, rising mortgage costs and increased taxes, as well as persistent worker shortages are the reason behind the country’s forecast being downgraded. 

The UK is expected to be the only country to shrink this year across all the advanced and emerging economies. Even Russia – which has been slapped with sanctions – is now forecast to grow this year.

When a country’s economy shrinks, it typically means companies make less money and the number of unemployment rises. 

IMF chief economist Pierre-Olivier Gourinchas told the BBC that last year, the UK had “one of the strongest growth numbers in Europe”.

But he said this year’s forecast reflected its “high dependence” on expensive liquid natural gas, which had driven up the cost of living.

The IMF expects the UK to grow in 2024, revising up its forecast to 0.9% from 0.6%. 

Forecasts from the Bank of England due later this week are likely to be more positive than they were two or three months ago, Paul Johnson, director of the Institute for Fiscal Studies said. 

“My best guess is that the economy will be broadly stagnant this year. That we’re not going to get much in the way of growth but we’re not going to have a deep recession either,” he told the BBC’s Today programme.

“Now that’s not great, particularly as we should be bouncing back more strongly from Covid and particularly as we’ve not been growing terribly well for the last decade and more.”