The UK is expected to be the only major power to see its economy contract this year, outperforming Russia.
According to the International Monetary Fund, the United Kingdom is the only G7 country in such dire financial straits (IMF).
It has predicted that the UK’s GDP will contract by 0.6% in comparison to the 0.3% growth predicted in October.
The IMF’s chief economist, Pierre-Olivier Gourinchas, explained that three primary factors are driving the UK’s economic outlook.
‘First, there is exposure to natural gas… we’ve seen a very sharp increase in energy prices in the UK,’ he said. Natural gas provides a greater share of energy, with a higher pass-through to consumers.
‘Employment in the UK has also not recovered to pre-pandemic levels. This is a situation in which there is a very tight labour market but an economy that has not re-absorbed as many people as it did previously. That means there will be less output and production.
‘The third point is that there is a very sharp monetary tightening because inflation has been very high, as a result of the high pass-through of energy prices.’
Chancellor Jeremy Hunt is now under increasing pressure to find a solution to the UK’s spiralling economic downturn.
The IMF’s pessimistic outlook for the year ahead places the UK far behind its G7 counterparts and makes it the only country – across advanced and emerging economies – expected to experience a year of declining GDP.
Among the other G7 countries, the IMF predicts 1.4% growth in the US, 0.1% in Germany, 0.7% in France, 0.6% in Italy, 1.8% in Japan, and 1.5% in Canada by 2023.
It comes against a backdrop of public sector pay strikes and predictions that the UK will enter a recession, with inflation remaining above 10%.