UK economic growth to lag behind Russia - IMF

The UK’s economy will perform worse than any other advanced economy this year, including sanction-hit Russia, the International Monetary Fund has warned.

Publishing its latest World Economic Outlook, the Washington-based body forecast the UK economy to shrink by 0.6% this year, a 0.9 percentage point downward revision on its October prediction.

For other advanced economies, the IMF is forecasting growth of 0.7% in the Eurozone, 1.4% in the US and 1.8% in Japan.

It expects the Russian economy to grow by 0.3% following a 2.2% contraction in 2022. Russia is viewed as an emerging and developing economy.

The IMF said its UK forecast reflected "tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets".

Overall, the IMF expects global growth to fall from an estimated 3.4% in 2022 to 2.9% in 2023 before strengthening slightly to 3.1% in 2024. Both figures remain below the historical average rate of 3.8%.

Global inflation, meanwhile, is predicted to fall from 8.8% in 2022 to 6.6% this year and then 4.3% in 2024.

The IMF said: "The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity.

"The rapid spread of Covid-19 in China dampened growth in 2022, but the recent opening has paved the way for a faster-than-expected recovery."

However, while the balance of risks remained tilted to the downside, adverse risks have moderated since its last forecast in October, the IMF noted.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "Ultimately, the UK has a productivity and demand problem, which when put together creates a very difficult environment.

"There’s a chance the UK could muster a better performance than the IMF is predicting, given upgrades to expectations from other bodies in recent months. The market will remain very sensitive to interest rate and inflation readings until we have a clear path out of the stagnation."

Victoria Scholar, head of investment at Interactive Investor, said: "The UK’s latest GDP figures sat the UK economy grow by 0.1% versus expectations for a contraction. It hangs in the balance whether the UK will narrowly stave off a recession or not.

"At the start of the year, Rishi Sunak pledged to halve inflation and grow the economy. While inflation is already showing signs of easing, the IMF’s forecast indicates that the latter pledge may be more difficult to achieve."