Closing summary
Time for a recap.
The UK economy is expected to shrink this year and will be at the back of the leading G7 countries during 2023, the International Monetary Fund has warned.
The IMF has lifted its forecast for the UK’s economy this year – it is now expected to shrink by 0.3%, not the 0.6% fall in GDP previously expected.
That would leave the UK lagging behind other advanced economies this year.
IMF chief economist Pierre-Olivier Gourinchas told reporters in Washington DC that UK growth this year has been stronger than than expected, but that the UK was vulnerable to a trade shock from high imported energy costs.
The tight labour market has also led to higher interest rates to fight inflation, Gourinchas told reporters in Washington DC.
The IMF also warned that the global economy could suffer a “hard landing” if persistently troublesome inflation forces interest rates to stay higher for longer.
But it has also predicted interest rates will fall back towards pre-pandemic levels, due to weak productivity and aging populations.
Tony Danker, the head of the Confederation of British Industry, says he was shocked to be dismissed today following an investigation into complaints about his conduct in the workplace.
Danker added that he was “truly sorry” for making colleagues “feel uncomfortable”.
He’s being replaced by former CBI chief economist Rain Newton-Smith.
The business lobby group said it wanted to make clear that Danker was not the subject of other complaints recently reported by the Guardian. Those other claims by more than a dozen women allege various forms of sexual misconduct by senior figures at the organisation.
City of London Police say they have begun an investigation into alleged sexual misconduct at the CBI, in the wake of the Guardian’s coverage of allegations at the business organisation.
European stock markets have risen today, with the FTSE 100 index jumping almost 0.6% as traders returned after the Easter break.
The blue-chip index has just closed at a one-month high of 7785 points.
Bitcoin hit its highest level since last June, climbing over $30,000, as crypto emerged from its recent slump.
In other news…
Economist Megan Greene is to join the Bank of England’s monetary policy committee this summer, replacing Silvana Tenreyro when her term ends in July.
More than 150 pubs closed for good in England and Wales during the first three months of this year as soaring energy bills and other costs pushed many operators over the edge.
UK consumers cut back on groceries, clothes shopping and eating out last month but streaming and pay TV subscriptions jumped as cash-conscious viewers switched to nights in.
Shareholders in Cineworld will be wiped out under the embattled cinema operator’s latest proposals to reorganise the business and exit bankruptcy.
The world’s deepest offshore wind turbine has been installed almost 17 miles off the coast of Angus as part of Scotland’s biggest offshore windfarm.
Tupperware, the 77-year-old company famed for its airtight food containers, has warned it could go bust if it cannot raise emergency funds to stay afloat.
Updated
IMF growth forecasts: What the experts say
Innes McFee, chief global economist at Oxford Economist, fears that the IMF’s new growth forecasts are too optimistic.
The IMF forecasts that world growth will drop to 2.8% this year, from 3.4% in 2022, before rising to 3% in 2024.
McFee says the new projections underestimate the impact of tighter financial conditions on advanced economies, saying:
The IMF’s forecast still looks too optimistic over the next 2 years in our view. The impact of bank funding turmoil looks to have been offset in their forecasts by the positive developments in European energy markets, solid economic momentum and China’s earlier than expected reopening, to leave the IMF’s global GDP projection broadly unchanged.
But we think their forecasts underestimate the impact that tightening in financial conditions will have on advanced economies in second half of this year and next. Our latest global forecast – to be published tomorrow – is more downbeat this year and next. We expect growth in PPP terms of 2.3% this year and 2.8% next, which is weak by historical standards. This equates to 1.9% and 2.2% respectively on a constant exchange rates basis – our preferred measure of global activity.
A key difference in our thinking seems to be that we expect more of an economic impact from tighter financial conditions in advanced economies than the IMF. Consequently, our 2024 forecasts for GDP growth in the US, Canada and the eurozone are more cautious.
With the fallout from bank funding turmoil still to be fully realised, we maintain the view that there are substantial downside risks to our forecast. The IMF appears to agree, assigning a 25% probability that global growth will fall below 2% in 2023.
Ryan Myerberg, portfolio manager and co-head of global taxable fixed income at Brown Advisory, agrees that higher borrowing costs are hitting the world economy, and worrying investors:
“We agree with the IMF when it says that the recalibration of growth is lower as tighter monetary policy continues to bite.
We have long been pounding the table over the impact that the last 12 plus months of hikes will have on interest rate-sensitive parts of the global economy and its role in creating an environment of nervous investors, which means every wobble and crack that appears will be magnified. This is especially true as liquidity conditions in all asset classes continues to get worse.”
