Britain to be worst-performing major economy this year, warns IMF, despite brightening global economy – business live

LIVE – Updated at 08:53

Britain is the only G7 economy forecast to shrink in 2023, the IMF says, as higher energy prices, rising mortgage costs and increased taxes hit growth.

Tesco to shake-up shop management roles and shut remaining counters and hot delis, impacting 2,100 jobs

Newsflash: supermarket chain Tesco says it plans to reduce the number of lead and team managers in its large UK stores, impacting around 1,750 workers.

In addition, a further 350 roles across Tesco’s UK business will be impacted by localised changes, such as the closure of eight pharmacies and reduced hours at some in-store post offices.

Tesco says it also plans to close the remaining counters and hot delis in UK stores from February 26th (via Reuters).


Speaking of inflation… the IMF is hopeful that price pressures will ease this year.

About 84% of countries are expected to have lower headline inflation in 2023 than in 2022, today’s World Economic Outlook predicts.

Global inflation is forecast to fall from 8.8% in 2022 to 6.6% in 2023, and fall again to 4.3% in 2024.

However, that would still leave average annual headline and core inflation above pre-pandemic levels in more than 80% of countries.

IMF chief economist Pierre-Olivier Gourinchas has warned that inflation could remain stubbornly high if tight labour markets push up wages, leading to higher interest rates. Plus, an escalation of the war in Ukraine could potentially destabilize energy or food markets and further fragment the global economy.

Gourinchas says central banks should be careful not to cut interest rates too early:

The inflation news is encouraging, but the battle is far from won. Monetary policy has started to bite, with a slowdown in new home construction in many countries.

Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries.

Where inflation pressures remain too elevated, central banks need to raise real policy rates above the neutral rate and keep them there until underlying inflation is on a decisive declining path. Easing too early risks undoing all the gains achieved so far.


Government minister Richard Holden has argued the International Monetary Fund (IMF) has been “wrong” before, and predicted that the UK will outperform its latest economic forecasts.

Holden, who is Parliamentary Under Secretary of State at the Department for Transport, told Times Radio:

“They’ve been wrong in the last two years, the OECD were also wrong over the last two years. I think Britain can beat those predictions.”

On Thursday, the Bank of England will release its own updated forecasts – and probably raise UK interest rates by another half a percent, to 4%. The BoE may upgrade its outlook, having warned in November that Britain could suffer its longest recession in century.


Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, also warns that the UK’s shrinking workforce is hitting growth:

“The IMF now expects the UK economy to shrink by 0.6% this year, which is a stark downgrade from previous expectations. This is a direct contrast to other major economies who have seen their outlooks upgraded because of resilient consumer demand. The UK is facing some specific problems, including its over-exposure to high energy retail prices, which are weighing on household budgets.

The UK also has a significant labour problem, which was initially caused by Brexit but has been made worse by a shrinking workforce since the pandemic. Mortgage rates are also prohibitively high in the UK which adds further pressure to the economy because it limits how much money people will spend on non-essentials. 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.

UK grocery price inflation rises to record 16.7%

More bad news: British grocery inflation has hit a record 16.7% in the four weeks to January 22, as households continued to be hammered by soaring food and drink prices.

Market researcher Kantar says this means families faced a potential £788 annual rise in the cost of their regular shopping basket as a result of rising prices, unless they change their shopping habits.

At 16.7%, grocery inflation was the highest since Kantar started tracking the figure in 2008. Prices are rising fastest in markets such as milk, eggs and dog food, it says.

This is a sharp jump on December’s grocery inflation reading of 14.4%, which lifted Christmas spending to a record £12.8bn.

Fraser McKevitt, Kantar’s head of retail and consumer insight, says January’s increase in prices was ‘staggering’:

“Late last year, we saw the rate of grocery price inflation dip slightly, but that small sign of relief for consumers has been short-lived.

Grocery price inflation jumped a staggering 2.3 percentage points this month to 16.7%, flying past the previous high we recorded in October 2022.”


Despite downgrading its UK growth forecast this year, the IMF has said it thinks the UK economy is now “on the right track” following the autumn statement, points out Victoria Scholar, head of investment at interactive investor:

“The International Monetary Fund (IMF) has predicted that the UK will be the only major economy out of the 15 in the report including sanction-rocked Russia to shrink in 2023. The fund expects the UK economy to contract by 0.6% this year, downgraded from growth of 0.3% in its previous forecasts. The British economy is expected to contract on the back of high energy prices, tax increases and rising interest rates.

However the IMF said the Treasury appears to be on the right track after the Autumn Statement and the fund upgraded the UK’s growth outlook for next year from 0.6% to 0.9%. Interestingly, the IMF did not mention Brexit as a reason because of the UK’s underperformance.

The UK’s latest GDP figures saw the UK economy grow in November by 0.1% versus expectations for a contraction, Scholar points out:

It hangs in the balance whether the UK will narrowly stave off a recession or not. At the start of the year, Prime Minister Rishi Sunak pledged to halve inflation and grow the economy. While inflation is already showing signs of easing, the IMF’s forecast indicates the latter pledge may be more difficult to achieve.

The IMF showed its support for the government’s fiscal prudence in the Autumn Statement in stark contrast to the fiscal fiasco around the mini-budget in September. This suggests that the Treasury is unlikely to pull any rabbits out of the hat at the Spring Budget on 15th March with Chancellor Jeremy Hunt expected to stick to tax increases rather than cuts as taming inflation remains an ongoing priority.”


Digging into the IMF’s latest forecasts, they show that about 90% of advanced economies are projected to see a decline in growth in 2023.

But the US, the eurozone and Japan are all expected to grow this year, unlike the UK.

Here’s the details:

  • In the United States, growth is projected to fall from 2.0 percent in 2022 to 1.4 percent in 2023 and 1.0 percent in 2024. With growth rebounding in the second half of 2024, growth in 2024 will be faster than in 2023 on a fourth-quarter-over-fourth-quarter basis, as in most advanced economies. There is a 0.4 percentage point upward revision for annual growth in 2023, reflecting carryover effects from domestic demand resilience in 2022, but a 0.2 percentage point downward revision of growth in 2024 due to the steeper path of Federal Reserve rate hikes, to a peak of about 5.1 percent in 2023.

  • Growth in the euro area is projected to bottom out at 0.7 percent in 2023 before rising to 1.6 percent in 2024. The 0.2 percentage point upward revision to the forecast for 2023 reflects the effects of faster rate hikes by the European Central Bank and eroding real incomes, offset by the carryover from the 2022 outturn, lower wholesale energy prices, and additional announcements of fiscal purchasing power support in the form of energy price controls and cash transfers.

  • Growth in the United Kingdom is projected to be –0.6 percent in 2023, a 0.9 percentage point downward revision from October, reflecting tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets.

  • Growth in Japan is projected to rise to 1.8 percent in 2023, with continued monetary and fiscal policy support. High corporate profits from a depreciated yen and earlier delays in implementing previous projects will support business investment. In 2024, growth is expected to decline to 0.9 percent as the effects of past stimulus dissipate.

IFS’s Paul Johnson: shortage of workers, higher mortgage costs and Brexit hitting UK

Labout shortages, high mortgage costs, and Brexit challenges are all weighing on the UK economy, says Paul Johnson, director of the Institute for Fiscal Studies.

Speaking on Radio 4’s Today Programme, Johnson points out that the UK’s performance doesn’t look quite so bad if you look at 2022 and 2023 together. The IMF estimates the UK economy grew by 4.1% last year, faster than the US’s 2% or the eurozone’s 3.5%.

But there are several factors affecting the UK more than other countries, Johnson says.

One, in particular, is the loss of people from the labour force, where the UK has lost more than half a million workers. That’s due to people retiring early, and “immigrants not coming in from the European Union, and so on”, Johnson says, adding:

That’s not affecting any other country in Europe…. That’s a particular challenge for us.

Secondly, higher interest rates are feeding through very quickly to mortgages in the UK.

And thirdly, the UK has “the continuing challenges from Brexit” – today, incidentally, is the third anniversary of the UK’s departure from the European Union.

Related: Three years on from Brexit, all UK voters are left with is a bitter taste of Bregret | Polly Toynbee

Paul Johnson also warns that there is only a “limited amount” that government’s can do in the short run to improve the economic outlook. He thinks chancellor Hunt is correct to focus on bringing inflation down.

Q: Is any of this a result of Liz Truss’s brief premiership?

Johnson replies that most of the immediate effects have gone – the UK’s borrowing costs are similar to other countries again (after surging after the mini-budget), while the exchange rate has recovered (the pound is worth $1.235 today, having hit a record low of $1.03 in the autumn).

Related: Pound hits all-time low against dollar after mini-budget rocks markets

But, there are long-term consequences of political instability, he adds, particularly in terms of how happy international companies are to invest here, and what risk premium they might take on the UK.

Introduction: IMF forecasts UK recession this year

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Growth, or the lack of it, is the main issue today after the International Monetary Fund released its latest economic forecasts overnight … and as we await eurozone GDP figures this morning.

The IMF’s message for Britain was grim – the UK is the only advanced economy expected to fall into recession this year.

UK GDP is forecast to shrink by 0.6% this year, the worst forecast for any G7 country this year, which is a 0.9 percentage point downward revision from October’s forecasts.

The IMF blamed the downgrade on tighter government spending policies and higher interest rates (which may be raised again on Thursday), and the burden from still-high energy retail prices on household budgets.

Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said 2023 would be “quite challenging” for the UK as it slipped from top to bottom of the G7 league table.

He added:

“There is a sharp correction.”

Related: Britain the only G7 economy forecast to shrink in 2023

The move piles more pressure on UK chancellor Jeremy Hunt, who’s facing calls from business groups for a more ambitious growth strategy, and demands from some Conservative MPs for tax cuts.

This contraction would follow 4.1% growth in 2022, the IMF says, one of the fastest growth rates among advanced economies last year.

The broader economic picture has brightened a little, though, the IMF says, citing “signs of resilience and China reopening”.

The IMF has lifted its forecast for the world economy this year: global growth will slow from 3.4% in 2022 to 2.9% in 2023 – an upgrade on its previous forecast of 2.7%.

The IMF’s Gourinchas says China’s sudden reopening paves the way for a rapid rebound in activity.

Gourinchas writes:

The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.

Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.

Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries – even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.

IMF growth forecasts Photograph: IMF

© Provided by The Guardian
IMF growth forecasts Photograph: IMF

Also coming up….

We find out today how the French, Portuguese, Italian and the wider eurozone economy fared in the final quarter of last year.

Yesterday we learned that Germany’s GDP shrank unexpectedly in Q4, by 0.2%, putting Europe’s largest economy at risk of a winter recession.

The agenda

  • 6.30am GMT: French Q4 2022 GDP report

  • 8.55am GMT: German unemployment report for January

  • 9.30am GMT: Portugal’s Q4 2022 GDP report

  • 9.30am GMT: UK mortgage approvals and consumer credit data for December

  • 10am GMT: Italy’s Q4 2022 GDP report

  • 10am GMT: Eurozone Q4 2022 GDP report

  • 1.30pm GMT: Canadian December and Q4 2022 GDP report

  • 2pm GMT: US house price index

IMF downgrades UK forecasts: what the media says

There’s plenty of media reaction to the IMF’s prediction that Britain’s economy will shrink this year as the cost-of-living crisis hits households hard, leaving the UK with the worst performance of all the advanced nations.

The Financial Times points out that even Russia – hit by sanctions following the Ukraine war – is expected to grow this year. They say:

The fund upgraded its forecasts for most leading economies and said the global outlook had brightened.

But it identified the UK as an exception and said the British economy would shrink by 0.5 per cent between the final quarter of 2022 and the final quarter of this year. Even Russia’s economy is now likely to outpace the UK’s, growing 1 per cent this year, according to the IMF forecasts.

Bloomberg points out that higher interest rates and tighter fiscal policy (government tax and spending policy) are blamed for slump:

Britain faces the bleakest two years of any major industrial nation with a recession in 2023 and the slowest growth of peers in 2024, the International Monetary Fund predicts.

The UK will be the only Group of Seven member whose economy will shrink this year, with a contraction of 0.6%, the IMF said. The Washington-based institution downgraded its outlook by a massive 0.9 percentage point from October, saying higher interest rates and taxes along with government spending restraint will exacerbate a cost-of-living crisis.

The Daily Mail says Britain has been hit with a “devastating forecast”, which adds to the pressure on Jeremy Hunt to produce a convincing plan for recovery.

While the Daily Telegraph points out that business leaders including Marks & Spencer chairman Archie Norman and Sir James Dyson have already been critical of the Government’s economic approach, adding:

The Prime Minister and the Chancellor are however resisting calls to cut taxes in the upcoming budget, with Mr Hunt insisting on Friday that inflation needed to come down first.

And in the Guardian, my colleague Larry Elliott writes:

The UK chancellor, Jeremy Hunt, last week warned a sense of declinism was hampering the UK’s economic recovery, and has come under pressure to come up with a credible plan to boost growth.

His speech, which focused on “enterprise, education, employment and everywhere”, was widely criticised by business leaders as being devoid of policies.

Related: Britain the only G7 economy forecast to shrink in 2023


You can read the International Monetary Fund’s latest World Economic Outlook here.

French economy grew 0.1% in Q4 2022

Just in: France’s economy slowed at the end of last year, but did better than economists predicted.

The French economy eked out growth of 0.1% in the fourth quarter of 2022, according to preliminary gross domestic product (GDP) figures just released.

That’s a slowdown compared to economic growth of 0.2% in the third quarter, but does beat forecasts – economists expected France to stagnate in Q4.

It also beats Germany, which shrank by 0.2% in Q4. We don’t yet know how the UK economy fared in the October-December quarter.


Rachel Reeves MP, Labour’s Shadow Chancellor, says the IMF’s forecasts show Britain needs a proper plan for growth:

“Britain has huge potential – but too many signs are pointing towards really difficult times for our economy, leaving us lagging behind our peers.

“The government should be doing all it can to make our economy stronger and to get it growing.

“It is the only way that we can move beyond lurching from crisis to crisis as we have been for far too long.

“Labour has a proper plan for growth that will get our economy back on track. Our Green Prosperity Plan and our active partnership with business will get our economy growing so we can get out of this spiral and onto a better path.”

Hunt: UK not immune to pressures on advanced economies

Chancellor Jeremy Hunt has responded to the IMF report, saying nearly all advanced economies were facing headwinds.

Hunt declared:

“The Governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted, however these figures confirm we are not immune to the pressures hitting nearly all advanced economies.

“Short-term challenges should not obscure our long-term prospects.”

[the IMF’s message, though, is that the UK is an exception to the brightening global prospects this year]