Britons will suffer from five more years of high interest rates that fuel price growth, according to the International Monetary Fund (IMF).
The United States, Japan, Germany, France, Italy, the United Kingdom, and Canada are the seven largest Western economies in terms of GDP based on market exchange rates, referred to as G7.
In its latest economy growth projections for the G7 countries in 2024, the IMF placed Britain at the bottom of the list.
The UK economy was estimated to grow by 0.6 percent next year after a revision of projections that previously showed a growth of one percent. Canada leads the group with 1.6 percent, followed by the United States with 1.5 percent.
The IMF downgraded the UK’s growth prospects because of the pressure from higher interest rates. The current bank rate is at 5.25 percent. It stopped climbing in September for the first time in almost two years.
High inflation damages the economy by fuelling high prices and financially draining the population, struggling to pay off their mortgages and other loans.
“The decline in [UK] growth reflects tighter monetary policies to curb still-high inflation and lingering impacts of the terms-of-trade shock from high energy prices,” the IMF said in its report.
The Bank of England (BoE) has indicated that the interest rate will stay as it is for quite some time. However, it doesn’t mean that it has reached its peak.
The IMF has predicted a peak of 6 percent in 2024 and a bank rate higher than 4 percent all the way up to 2029.
Even at 4 percent, the inflation rate will be significantly higher than the government’s target of 2 percent.
“The IMF have upgraded growth for this year and downgraded it for next—but longer term they say our growth will be higher than France, Germany, or Italy. To get there we need to deal with inflation and do more to unlock growth—which I will be focusing on in the upcoming Autumn Statement,” Chancellor Jeremy Hunt said.
Mr. Hunt will deliver the Autumn Statement on Nov. 22 and with the bleak forecasts from the IMF, he will have to provide reassurance for British households, facing five more years of high borrowing costs.
Falling Momentum
IMF Director of Research Pierre-Olivier Gourinchas said that the general perspective on the United Kingdom was that of “fairly subdued growth.”“We have falling momentum. We have a labor market that is cooling. But inflation remains quite persistent. And that is going to require monetary policy to remain tight for a little while longer, into next year,” Mr. Gourinchas said during a press briefing on Tuesday.
Commenting on the risk to global economy, posed by the conflict in Israel and Gaza, Mr. Gourinchas said it was “too early to really assess” its impact.
The IMF estimated the global GDP to rise by 3 percent this year and 2.9 percent in 2024. This remains below historical levels.
“The global economy continues to recover from the pandemic and Russia’s invasion of Ukraine, showing remarkable resilience; yet growth remains slow and uneven. The global economy is limping along, not sprinting,” Mr. Gourinchas said.
He noted that the slowdown was more pronounced in advanced economies than in emerging markets and developing economies.
In his speech at the Conservatives’ conference in Manchester, Mr. Hunt called on the party members to “roll up their sleeves” and “watch the British economy prove the doubters wrong.”
How the government plans to accomplish that will be clearer after Mr. Hunt elaborates on economic policies in November’s statement.
Meanwhile, Shadow Chancellor Rachel Reeves has pledged to restore economic growth to Britain in her speech on Monda. She was criticized by Mr. Hunt for not mentioning inflation, the “biggest single issue for the economy.”
