Britain is expected to suffer one of the biggest rises in unemployment after the International Monetary Fund put it at the bottom of the pile again in its latest growth forecasts.
The lender of last resort predicted a 0.3 per cent slide in UK economic output 2023, with the UK also faring worse than other major economies on unemployment and inflation. The downturn will trigger a 1 percentage point rise in the jobless rate to 4.7 per cent in 2024, compared to flat or falling joblessness across much of Europe.
The forecasts underscore the pessimism held by international institutions toward the British economy as households are squeezed by double-digit inflation and the government battles to restore its fiscal credibility. A rise in unemployment would at least loosen Britain’s extremely tight jobs market, where worker shortages have helped to fuel inflation.
“This year’s economic slowdown is concentrated in advanced economies, especially the euro area and the UK,” said Pierre-Olivier Gourinchas, IMF director of research. The IMF said the UK is one of the countries where painfully high inflation is leaving household budgets “stretched”.
The IMF handed Britain an upgrade in its World Economic Outlook forecasts but still expects it to suffer the largest contraction of any Group of 20 economy, followed by an anemic 1 per cent rebound in GDP next year. Germany is the only other large economy predicted to shrink in 2023.
Taken together, the IMF forecasts leave UK output just 0.7 per cent higher in 2024 than it was in 2022, the worst performance in the G-20.
The IMF expects UK inflation to remain higher than the major euro zone economies at 6.8 per cent in 2023 while only the US is predicted to suffer a bigger unemployment increase of the Group of Seven economies over the coming years. Unemployment will rise to 4.7 per cent in 2024 from 3.7 per cent currently compared to flat at 6.8 per cent in the euro zone in the next two years.
The UK was also bottom of the pack in the IMF’s previous forecasts in January but recent data suggests its economy has been more resilient than many had expected. The Bank of England said last month that the economy could even swerve a technical recession as the outlook improves.