Rishi Sunak will face the general election next year with Italy the only other country in Europe having more dismal economic growth than the UK, according to leading economists.
The forecasts from the International Monetary Fund have Britain’s economic output falling 0.3 per cent this year and then growing by a paltry one per cent in 2024.
Inflation, currently above 10 per cent, would end up being 6.8 per cent for the year 2023 and three per cent for 2024.
The unemployment rate would rise from 3.7 per cent last year, to 4.2 per cent this year and then reach 4.7 per cent in 2024, lower than many other European countries.
But if the IMF predictions turn out to be correct, it would mean that only Italy would be growing slower in Europe than Brexit-hit Britain next year, at 0.8 per cent.
The UK would be level-pegging on one per cent with Sweden, Denmark and San Marino. Germany would be marginally stronger at 1.1 per cent, France 1.3 per cent, Spain 2 per cent, and Poland 2.4 per cent, with Ireland roaring ahead at 4 per cent.
Not only would Britain’s 2024 growth be lacklustre, it would come off the back of being one of the few shrinking economies in Europe this year. Only Estonia, at -1.2 per cent, and the Czech Republic at -0.5 per cent, would have bigger falls in output than the UK’s -0.3 per cent.
However, the IMF did slightly upgrade its economic forecasts for Britain, by 0.3 percentage points and 0.1 respectively for 2023 and 2024.
Chancellor Jeremy Hunt seized on these moves, saying: “Thanks to the steps we have taken, the OBR says the UK will avoid recession, and our IMF growth forecasts have been upgraded by more than any other G7 country.
“The IMF now say we are on the right track for economic growth. By sticking to the plan we will more than halve inflation this year, easing the pressure on everyone.”
But shadow Chancellor Rachel Reeves stressed: “IMF projections that Britain will have a smaller economy by the end of the year, and the poorest growth in the G7 over this year and next, shows just how far we continue to lag behind on the global stage.
“This matters not just because 13 years of low growth under the Tories are weakening our economy, but because it’s why families are worse off, facing a Tory mortgage penalty and seeing living standards falling at their fastest rate since records began.”
Tory MPs are hoping that by the time of the next election, widely expected to be in the autumn of next year, that the cost of living crisis will be easing.
They believe that if voters are starting to feel better off, or at least can see the prospect of this happening, they may decide to stick with a Conservative government.
Most polls, though, currently show the Tories failing to significantly close a gap of 15 to 20 points on Labour, even if Mr Sunak’s personal ratings are rising.
In January he made five key promises on which to judge him: halving inflation this year, boosting economic growth, bringing down debt, reducing NHS waiting lists, and passing new laws to stop the “small boats” Channel crisis.
On Tuesday, the IMF warned of “thickening fog” over the world’s economic outlook amid concerns over the banking sector as central banks have ramped up interest rates to try to bring down inflation which spiralled after Vladimir Putin’s invasion of Ukraine, coming so soon after the economic shock of Covid.
“A hard landing, particularly for advanced economies, has become a much larger risk,” the economists warned.
“Policymakers may face difficult trade-offs to bring sticky inflation down and maintain growth while also
preserving financial stability.”
They added: “Moreover, differences across economies reflect their varying exposure to underlying shocks.
“For example, headline inflation is running at nearly 7 per cent (year on year) in the euro area — with some member states seeing rates near 15 per cent — and above 10 per cent in the United Kingdom, leaving household budgets stretched.”
On house prices, they added: “Housing markets and prices are likely to cool more and be more sensitive to policy rate hikes in economies in which house prices rose more during the pandemic.”
Chancellor Jeremy Hunt has so far brushed away calls from Tory MPs for tax cuts this year, stressing the need to first reduce inflation.
Britain is in the grip of a “lost decade” in living standards, with official projections suggesting “that real household disposable incomes will be no higher in 2027 than they were in 2019, and barely higher than in 2017”, according to the Institute for Fiscal Studies.
“A return of the world economy to the pace of economic growth that prevailed before the bevy of shocks in 2022 and the recent financial sector turmoil is increasingly elusive,” the IMF added.
“Over the medium term, the prospects for growth now seem dimmer than in decades.”
