Prime Minister Boris Johnson’s claims that the UK has the fastest growing economy in the G7 were undermined on Tuesday as the IMF forecast it would sink to the bottom of the league table next year.
The fund predicted Britain’s economy would increase by just 1.2 per cent in 2023 as the cost of living crisis and tax increases slowed economic activity to a crawl. While all other G7 countries — the US, Japan, Germany, France, Italy and Canada — were forecast to grow faster.
Expanding on the IMF’s forecast of economic woes for the UK next year, it predicted that inflation would be higher than every other G7 member and slower to return to its 2 per cent target.
Pierre-Olivier Gourinchas, IMF chief economist, said: “What we are seeing is that the UK is facing elevated inflation and tight monetary policy is weighing down on economic activity this year and next.”
The IMF forecasts could be awkward news for the prime minister who repeatedly said the UK was likely to be the fastest growing economy in the group as it recovered from a deep coronavirus downturn.
In a speech to the Conservative party conference last month, Johnson said: “Thanks to the speed of that booster rollout, we have the fastest growing economy in the G7.”
Economists have pointed out that the UK’s economic performance over the Covid-19 crisis has been average among the G7. This has been masked by greater volatility following a relatively big contraction in 2020 followed by a faster recovery last year, with the IMF forecasting more of a hangover in 2023 as taxes rise.
Julian Jessop, an independent economist, said the volatility of the UK’s performance from year to year depended on the timings of its Covid lockdowns, subsequent bounce backs and its exposure to Russia’s invasion of Ukraine.
“The medium-term growth performance [of most G7 countries] is pretty similar,” he said, adding that the UK’s growth projections for the middle of the decade were towards the top of the G7 league table, highlighting a reasonable outlook.
Weak growth next year as households deal with the rising cost of living and companies face an increase in the corporate tax rate from 19 per cent to 25 per cent next April will make it difficult for Rishi Sunak, chancellor, to put the economy centre stage in any early general election.
Rachel Reeves, shadow chancellor said: “The IMF’s economic outlook shows the UK is forecast to have the slowest growth in the G7 next year. Once again, the Conservative economic strategy of low growth and high taxes is laid bare.”
With slow growth in 2023, the IMF forecast that unemployment would rise to 4.6 per cent after it hit a multi-decade low of 3.8 per cent at the start of the year, according to official data.