Bleak Outlook for UK Growth as IMF Downgrades Forecast

The UK economy is set for a sluggish year, with the International Monetary Fund (IMF) revising its growth forecast downwards. This news paints a grim picture for the British people, with the country predicted to be the second-worst performer among leading industrialized nations (G7) in 2024.

The IMF now expects UK gross domestic product (GDP) to expand by a meagre 0.5% this year, a slight dip from their January predictions. This stands in stark contrast to the projected global growth of 3.2%. However, there’s a glimmer of hope for 2025. The IMF anticipates the UK GDP to rebound to 1.5%, making it the third-best performer in the G7 as households hopefully recover from the prolonged cost-of-living squeeze.

Inflation, a major concern for Britons, is predicted to remain elevated at around 2.5% for the remainder of 2024. Relief may come in 2025, with inflation expected to inch closer to the Bank of England’s target of 2%.

Looking beyond raw numbers, the IMF also considers GDP per capita, a more accurate reflection of living standards. Here, the picture is even bleaker. With a growing population driven by record immigration, the IMF forecasts flatlining GDP per capita in 2024, meaning there’s no improvement in living standards for the average Briton. While a slight increase of 1.1% is predicted for 2025, it’s far from the growth needed to offset the cost-of-living pressures.

Despite the gloomy outlook for the UK, the IMF acknowledges the global economy’s surprising resilience over the past two years. However, the ongoing conflict in the Middle East casts a long shadow, threatening to push up food and energy prices worldwide.

The IMF’s Director of Research, Pierre-Olivier Gourinchas, offered a cautious note of optimism: “The world has avoided a recession, the banking system held firm, and major emerging markets didn’t experience financial meltdowns, despite the many gloomy predictions.” He also expressed concern, stating that lower-income countries would likely bear the brunt of rising food, energy, and transport costs.

While potential risks remain, such as the troubled Chinese property sector’s slow recovery, there’s a chance for a brighter future. Economists believe that upcoming elections around the world could lead to tax cuts, providing a short-term boost to economic activity.

Overall, global output is expected to grow by 3.2% in 2024, a slight improvement on the IMF’s January forecast. This news offers little comfort to the UK, where both the Conservative government and the Labour opposition have pinned their success on a thriving economy.

Prime Minister Rishi Sunak’s pledge to prioritize economic growth made at the start of 2023 has been overshadowed by the recent recession. Labour, on the other hand, hopes for stronger growth to generate revenue for increased public spending. However, they’ve adopted the same borrowing rules as the Conservatives, pledging not to increase national debt.

The UK Treasury remains optimistic about the medium-term forecast. A spokesperson emphasized that while short-term growth has been impacted by higher interest rates, the UK fared better than Germany, France, and Italy, which faced bigger downgrades.

Furthermore, the spokesperson highlighted the IMF’s prediction of a faster-than-expected decline in inflation. They also pointed to the government’s recent tax cuts for 29 million people as evidence of a plan to stimulate the economy and “reward work.”

Despite the government’s optimistic spin, Britons face a challenging year with limited economic growth. The coming months will be crucial in determining if the government’s policies can deliver on their promises and ease the cost-of-living burden on ordinary citizens.