UK economy to fare worse than any other country in developed world this year, IMF forecasts
Britain’s economic reputation has been dealt a further blow after the International Monetary Fund (IMF) forecast that this year the UK economy will fare worse than any other country in the developed world – including Russia.
In the latest update of its economic forecasts, the IMF said that it expected the UK’s gross domestic product (GDP) to contract by 0.6% in 2023.
To add further humiliation for the chancellor and prime minister, even as Britain’s outlook was downgraded, most other countries around the world saw their forecasts upgraded.
But the Fund said that while the broader global economy was doing better than expected, with inflation having peaked and investment beginning to turn around, the UK economy would face a downgrade “reflecting tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets.”
The UK had previously been forecast to grow by 0.3% this year and 0.6% next year.
Now, said the Fund, it should expect -0.6% this year and 0.9% growth in 2024.
The comments are especially awkward for the Treasury, which has been criticised by some for its plans to raise taxes and reduce the budget deficit in coming years, resulting in an increase in costs for businesses and households, even as they continue to battle a cost of living crisis.
Up until recently, chancellor Jeremy Hunt had contextualised the UK’s relatively weak growth by pointing to the fact that the IMF’s recent forecasts projected that a third of countries were facing a recession.
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However, the Fund has now upgraded its growth projections for Italy and Germany, with the result that both will now grow more than the UK in 2023.
Indeed, Britain’s -0.6% GDP is the worst of any economy included in its latest forecast update, including Russia – which despite facing sanctions from most of the West is projected to grow by 0.3%.
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Mr Hunt said of the forecast: “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 UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”
The IMF said it now expected the global economy to expand by 2.9% in 2023.
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UK ‘could be in for first quarter contraction’
Although this is down from the 3.4% in 2022, it is nonetheless 0.2 percentage points faster than the Fund previously forecast in October.
It said: “Adverse risks have moderated since the October 2022 [World Economic Outlook].
“On the upside, a stronger boost from pent-up demand in numerous economies or a faster fall in inflation are plausible.
“On the downside, severe health outcomes in China could hold back the recovery, Russia’s war in Ukraine could escalate, and tighter global financing conditions could worsen debt distress.”
After China’s decision to open up its economy and ditch its zero-COVID policy, the Fund upgraded its GDP projection from 4.4% to 5.2% this year.
It said the US would grow by 1.4%, rather than its previous projection of 1%.
Germany, which was previously forecast to shrink by 0.3%, is now slated to grow by 0.1%.
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The COP29 climate talks have reached a last ditch deal on cash for developing countries, pulling the summit back from the brink of collapse after a group of countries stormed out of a negotiating room earlier.
The slew of deals finally signed off in the small hours of Sunday morning in Azerbaijan includes one that proved hardest of all – one about money.
Eventually the more than 190 countries in Baku agreed a target for richer polluting countries such as the UK, EU and Japan to drum up $300bn a year by 2035 to help poorer nations both curb and adapt to climate change.
It is a far cry from the $1.3trn experts say is needed, and from the $500bn that vulnerable countries like Uganda had said they would be willing to accept.
But in the end they were forced to, knowing they could not afford to live without it, nor wait until next year to try again, when a Donald Trump presidency would make things even harder.
Bolivia’s lead negotiator Diego Pacheco called it an “insult”, while the Marshall Islands’ Tina Stege said it was “not nearly enough, but it’s a start”.
UN climate chief Simon Stiell said: “This new finance goal is an insurance policy for humanity, amid worsening climate impacts hitting every country.
“No country got everything they wanted, and we leave Baku with a mountain of work still to do. So this is no time for victory laps.”
The funding deal was clinched more than 24 hours into overtime, and against what felt like all the odds.
The talks were rocked from the start by the incoming presidency of climate denier Mr Trump, the moment Argentina’s team were recalled back to Buenos Aires by their right-wing president and a controversial letter that sent shockwaves through the United Nations.
Pic: AP
The fraught two weeks of negotiations pitted the anger of developing countries who are footing the bill for more dangerous weather that they did little to cause, against the tight public finances of rich countries.
A relieved Juan Carlos Monterrey Gomez, climate envoy for Panama, said there is “light at the end of the tunnel”.
Just hours ago, the talks almost fell apart as furious vulnerable nations stormed out of negotiations in frustration over that elusive funding goal.
They were also angry with oil and gas producing countries, who stood accused of trying to dilute aspects of the deal on cutting fossil fuels.
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Climate-vulnerable nations storm out of talks
The UN talks work on consensus, meaning everyone has to agree for a deal to fly.
A row over how to follow up on last year’s pledge to “transition away from fossil fuels” was left unresolved and punted into next year, following objections from Chile and Switzerland for being too weak.
A draft deal simply “reaffirmed” the commitment but did not dial up the pressure in the way the UK, EU, island states and many others here wanted.
Saudi Arabia fought the hardest against any step forward on cutting fossil fuels, the primary cause of climate change that is intensifying floods, drought and fires around the world.
Governments did manage to strike a deal on carbon markets at COP29, which has been 10 years in the making and will allow countries to trade emissions cuts.
‘Not everything we wanted’
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The UK’s energy secretary, Ed Miliband, said the deal is “not everything we or others wanted”, but described it as a “step forward”.
“It’s a deal that will drive forward the clean energy transition, which is essential for jobs and growth in Britain and for protecting us all against the worsening climate crisis,” he added.
“Today’s agreement sends the signal that the clean energy transition is unstoppable.
“It is the biggest economic opportunity of the 21st century and through our championing of it we can help crowd in private investment.”
Protesters at the summit in Baku. Pic: AP
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The Azerbaijan team leading COP29 said: “Every hour of the day, we have pulled people together. Every inch of the way, we have pushed for the highest common denominator.
“We have faced geopolitical headwinds and made every effort to be an honest broker for all sides.”
At least 20 people have been killed and 66 injured in Israeli strikes on central Beirut, Lebanese authorities have said.
Lebanon‘s health ministry said the death toll could rise as emergency workers dig through the rubble looking for survivors. DNA tests are being used to identify the victims, the ministry added.
The attack destroyed an eight-storey residential building and badly damaged several others around it in the Basta neighbourhood at 4am (2am UK time) on Saturday.
The central Basta neighbourhood in Beirut
The Israeli military did not warn residents to evacuate before the attack and has not commented on the casualties.
At least four bombs were dropped in the attack – the fourth targeting the city centre this week.
A separate drone strike in the southern port city of Tyre this morning killed two people and injured three, according to the state-run National News Agency.
The victims were Palestinian refugees from the nearby al Rashidieh camp who were out fishing, according to Mohammed Bikai, spokesperson for the Fatah Palestinian faction in the Tyre area.
Israel’s military warned residents today in parts of Beirut’s southern suburbs that they were near Hezbollah facilities, which the army would target in the near future. The warning, posted on X, told people to evacuate at least 500 metres away.
The army said that over the past day it had conducted intelligence-based strikes on Hezbollah targets in Dahiyeh, in Beirut’s southern suburbs, where Hezbollah has a strong presence. It said it hit several command centres and weapons storage facilities.
Pic: AP
Israel has killed several Hezbollah leaders in air strikes on the capital’s southern suburbs.
Heavy fighting between Israel and Hezbollah is ongoing in southern Lebanon, as Israeli forces push deeper into the country since launching a major offensive in September.
According to the Lebanese health ministry, at least 3,670 people have been killed in Israeli attacks there, with more than 15,400 wounded.
It has displaced about 1.2 million people – a quarter of Lebanon’s population – while Israel says about 90 soldiers and nearly 50 civilians have been killed in northern Israel.
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Meanwhile, six people, including three children and two women, were killed in the southern Gazan city of Khan Younis.
Some 44,176 Palestinians have been killed since the start of Israel’s military campaign in Gaza, according to the Gaza health ministry.
The ministry does not distinguish between civilians and combatants in its count, but it has said that more than half of the fatalities are women and children.
The war began when Hamas-led militants stormed into southern Israel on 7 October 2023, killing some 1,200 people and taking another 250 hostage.
US envoy Amos Hochstein was in the region this week to try to end more than 13 months of fighting between Israel and Hezbollah, ignited last October by the war in Gaza.
Mr Hochstein indicated progress had been made after meetings in Beirut on Tuesday and Wednesday, before going to meet Israeli Prime Minister Benjamin Netanyahu and defence minister Israel Katz.
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