LONDON: British economic growth will slow sharply to the weakest of any major economy next year, the International Monetary Fund forecast on Tuesday, in a broader downgrade to the world’s growth prospects after Russia’s invasion of Ukraine.
The IMF cut its forecast for British gross domestic product growth this year to 3.7% from January’s forecast of 4.7%, while for 2023 the growth rate was almost halved to 1.2% from 2.3%.
“Consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment,” the IMF said.
Last month Britain’s Office for Budget Responsibility (OBR) cut its 2022 growth forecast to 3.8% and reduced its 2023 forecast to 1.8%.
As well as being the weakest growth of any country in the Group of Seven (G7) next year, the scale of the downgrade is also bigger than for any other G7 economy.
The IMF forecasts - which focus on global issues - did not explain in detail why Britain, which has fairly limited direct trade links with Russia and Ukraine, would be so hard hit.
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However, its forecasts showed that inflation in Britain would stay higher than in any big advanced economy, dropping to 5.3% in 2023 from 7.4% this year, compared with falls to 2.9% in the United States and 2.3% in the euro zone.
Britain, like the United States, had also seen a drop in the number of older workers since the pandemic, creating labour shortages, the IMF added.
As part of general advice to central banks, the IMF said they should communicate clearly what they think is a ‘neutral’ interest rate, as well as their willingness if needed to keep rates above that level to bring down inflation.
The Bank of England has said Britain’s neutral rate is below where it was before the 2008 financial crisis, but that it is not possible to give a specific range.
The IMF also said governments could offer support for households facing big price increases, but that it should be focused on poorer households.