According to the International Monetary Fund, as the cost of living continues to affect households, the UK economy will contract and perform worse than other advanced economies, including Russia.

Instead of expanding slightly as previously predicted, the economy will contract by 0.6% in 2023, according to the IMF.

The IMF did add, however, that it believes the UK is currently "on the right track." The UK performed better than many forecasts last year, according to Chancellor Jeremy Hunt.

The UK is "lagging behind our peers," according to the figures, according to shadow chancellor Rachel Reeves.

The International Monetary Fund (IMF), which works to stabilize economic growth, stated that it had lowered its forecast for the UK due to the country's high energy costs, rising mortgage rates, higher taxes, and ongoing labour shortages. Brexit was not mentioned in the report as a reason the UK didn't perform as well as other countries. Three years have passed since the UK exited the EU.

Among all the developed and developing economies, the UK is predicted to be the only one to experience economic contraction in 2019. Now, even Russia, which is under sanctions, is expected to grow this year.

When a nation's economy contracts, typically businesses make less money and the unemployment rate goes up. According to IMF Chief Economist Pierre-Olivier Gourinchas, the UK's 4.1% growth rate last year was "one of the strongest in Europe."

According to data made public on Tuesday, the Eurozone's economy grew by 3.5% in 2022, while the entire European Union's economy grew by 3.6%.

Gourinchas said this year`s forecast for the UK reflected its "high dependence" on expensive liquid natural gas, which had driven up the cost of living. Paul Johnson, director of the Institute for Fiscal Studies, said that the IMF's forecasts were not always right, and he noted the fund was "actually being more optimistic than it was a few months ago". Forecasts from the Bank of England due later this week are likely to be more positive than they were two or three months ago, he added.

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." A forecast such as this on its own, even from the world's most important international economic institution is just that, a forecast.

The short answer is that the UK economic environment has worsened after September`s mini-budget. The tax and interest rate rises required will slow the UK economy in particular, along with the more common shock of still high energy prices. The longer answer is that the IMF is not the only august institution wondering about economic hits affecting the UK.

The IMF's bleak picture for the UK comes after Hunt warned it was "unlikely" that there would be room for any "significant" tax cuts in the Spring Budget. The chancellor, who has been under pressure from some in his party to cut taxes to stimulate the economy, has said that lowering inflation is "the best tax cut right now."

Inflation - the rate at which prices rise—remains close to its highest level in 40 years. Prime Minister Rishi Sunak has pledged to halve inflation by the end of the year, but many expect this to happen anyway, largely due to a slowdown in energy price rises and as post-pandemic supply problems ease. The government`s official independent forecaster, the Office for Budget Responsibility (OBR), expects inflation, which measures the rate of price rises, to fall to 3.75% by the end of this year—well below half the current level.

While the IMF predicts the UK economy will contract, it forecasts economic growth of 1.4% in the US, 0.1% in Germany, and 0.7% in France. Economic forecasters are not always right when it comes to predicting the future. The IMF has said its forecasts for most advanced economies like the UK's have more often than not been within about 1.5 percentage points of what actually happens.

According to the IMF, the war in Ukraine and the practice of central banks raising interest rates to combat inflation continue to "weigh on economic activity" globally.

However, it claimed that China's economy being once again unrestricted by COVID "paved the way for a faster-than-expected recovery" globally.

Source: BBC