United Kingdom: The International Monetary Fund (IMF) has warned that the UK economy will shrink and perform worse than other advanced economies as the cost of living continues to hit households.

The report stated that the country’s economy will contract by 0.6 percent in 2023, worse than it had been pencilled in just three months ago.

In its World Economic Outlook update, the IMF, which works to stabilise economic growth, noted that the UK’s Gross Domestic Product (GDP) would shrink rather than grow by 0.3 percent in 2023.

Mr. Pierre-Olivier Gourinchas, the IMF’s economic counsellor, remarked that 2023 would be “quite challenging” for the UK as it slipped from the top to the bottom of the G7 league table. “There is a sharp correction,” Mr. Gourinchas stated.

The IMF reported that while the prospects for every other member of the G7 group of leading developed nations had improved or remained unchanged since October 2022, rising interest rates and higher taxes had affected the UK significantly.

“As a response to this high inflation, there is a tightening of monetary policy by the Bank of England, and in the UK, this feeds quickly into mortgages because a lot of mortgages are adjustable rates. So a lot of homeowners with mortgages are seeing an increase in their mortgage payments,” Mr. Gourinchas continued.

Furthermore, Mr. Gourinchas noted that a factor in the UK’s forecast was that employment was still below pre-pandemic levels.

According to the economist, the plans outlined by the Treasury in the months since the Autumn Statement showed the UK was “certainly trying to carefully navigate these different challenges, and we think that they are on the right track.”

However, the IMF report noted that in 2024 it expected UK growth to be 0.9 percent, up from 0.6 percent previously.

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