Here we go again: IMF predicts UK economy to lag US and EU next year
The UK is set to be the weakest performing advanced economy in 2024 according to new forecasts from the International Monetary Fund (IMF) as tighter monetary policy slows economic activity.
The Washington-based institution cut its forecasts for the UK’s growth in 2024 to just 0.6 per cent, putting it below all other advanced economies.
In its previous forecasts from July, the IMF had predicted the UK would grow at 1.0 per cent over 2024. Its latest downgrade does not factor in the recent revisions to UK GDP since the pandemic.
“The decline in growth reflects tighter monetary policies to curb still-high inflation and lingering impacts of the terms-of-trade shock from high energy prices,” the IMF said.
Inflation in the UK has proved to be stickier than in many similar countries, with it suffering from both a tight labour market and higher energy prices from the Russian invasion of Ukraine.
Across 2024, the IMF predicts inflation will remain above the Bank’s two per cent target, averaging 3.7 per cent.
Although interest rates have been hiked to a post-financial crisis high of 5.25 per cent , experts at the Resolution Foundation suggest that a majority of the impact of rate hikes is still to be felt.
This will likely slow economic activity dramatically over the next year or so, with some analysts predicting the UK will fall into a recession.
Growth in the US is forecast to be 1.4 per cent across 2024 while the eurozone is expected to grow 1.2 per cent next year. Japan and Canada meanwhile are predicted to grow 1.0 per cent and 1.6 per cent.
For 2023, the IMF marginally upgraded its forecasts for the UK’s performance from 0.4 per cent to 0.5 per cent.
Chancellor of the Exchequer, Jeremy Hunt, said: “The IMF have upgraded growth for this year and downgraded it for next – but longer term they say our growth will be higher than France, Germany or Italy.
“To get there we need to deal with inflation and do more to unlock growth – which I will be focusing on in the upcoming Autumn Statement,” Hunt continued.
Unemployment in the UK is expected to creep up to 4.6 per cent next year, although this remains comfortably below the long-run average.
Slow growth in the UK is not exceptional though. World economic growth will slow from 3.5 per cent
in 2022 to three per cent this year and 2.9 per cent next year, a 0.1 percentage point downgrade for 2024 from July. This remains well below the historical average.