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.
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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Why EY sees weaker 2023 outlook
Chancellor says UK ‘not immune’ from pressure
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%.
Three suspects have been charged by Canadian police over the killing of a Sikh separatist leader in Vancouver last June, in an incident that sparked a diplomatic spat between Ottawa and New Delhi.
Hardeep Singh Nijjar, 45, was shot dead outside a temple by masked gunmen in Surrey, outside Vancouver, on 18 June 2023.
Royal Canadian Mounted Police assistant commissioner David Teboul said police could not comment on the nature of the evidence or the motive.
“This matter is very much under active investigation,” Teboul said.
The three suspects – Indian nationals Kamalpreet Singh, Karan Brar and Karampreet Singh – were arrested in Edmonton, Alberta, the Royal Canadian Mounted Police said.
Superintendent Mandeep Mooker said: “This investigation does not end here. We are aware that others may have played a role in this homicide and we remain dedicated to finding and arresting each one of these individuals.”
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Canada killing ‘linked’ to India govt
Canadian Prime Minister Justin Trudeau sparked a diplomatic feud with India when he said in September that there were “credible allegations” of Indian involvement in the killing. India angrily denied involvement.
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Mr Nijjar, an Indian-born citizen of Canada, was a leader in what remains of the Khalistan movement – a once-strong group calling for the creation of an independent Sikh homeland.
He was organising an unofficial referendum in India for an independent Sikh nation at the time of this death and had denied allegations of ties to terrorism.
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The Khalistan movement has lost much of its power but is still supported by some in the Punjab state in northwestern India and in the Sikh diaspora overseas.
A violent, decade-long Sikh insurgency shook north India in the 1970s and 1980s, and was ultimately crushed in a government crackdown which saw thousands of people killed, including prominent Sikh leaders.
In June 1984, Indian forces stormed the Golden Temple, the holiest Sikh shrine in Amritsar, where separatists had taken refuge.
In more recent years, the Indian government has repeatedly warned that Sikh separatists were trying to make a comeback.
The Indian government said it “completely rejected” Mr Trudeau’s allegations and added: “We are a democratic polity with a strong commitment to rule of law.”
Heavy rains in southern Brazil have killed 37 people, local authorities have said, with dozens still unaccounted for.
More than 70 people are missing and at least 23,000 people have been displaced in Rio Grande do Sul, according to the state’s civil defence agency.
In some cities, water levels have been at their highest since records began almost 150 years ago, the Brazilian Geological Service said.
It said the flooding is the worst to hit the state in more than 80 years, surpassing that of a historic deluge in 1941.
Roads have been turned into rivers in several towns, with bridges destroyed and the storm triggering landslides and the partial collapse of a dam structure at a hydroelectric power plant.
Residents near to a second dam in the city of Bento Goncalves have been ordered to evacuate, as fears of another collapse grow.
“It’s not just another critical situation, it’s probably the most critical case the state has ever recorded,” Rio Grande do Sul Governor Eduardo Leite said on social media.
He added the number of deaths will likely rise as authorities have not been able to reach some locations.
President Luiz Inacio Lula da Silva has travelled to the state to visit affected locations and discuss rescue efforts with the governor.
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The state is at a geographical meeting point between tropical and polar atmospheres, which has created periods of intense rains and others of drought.
Scientists believe the pattern has been intensifying due to climate change.
Heavy rains hit the state last September, as an extratropical cyclone caused floods that killed more than 50 people.
That came after more than two years of a persistent drought due to the La Nina phenomenon.
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The UK will appoint a new envoy to oversee a plan to ramp up the production of weapons and ammunition, which is now a “national priority”, the foreign secretary has revealed.
Lord Cameron, speaking on a visit to Ukraine, also underlined the importance of supporting the Ukrainian war effort against Russia, warning that the world was at an “absolutely critical tipping point” and Kyiv must prevail or else Europe faced a “very dangerous future”.
However, he cautioned against an idea from French President Emmanuel Macron to consider sending NATO troops to Ukraine to join the fight if Russia’s Vladimir Putin achieves a breakthrough, saying that such a move would be a “dangerous escalation”.
“I don’t think it is right to have NATO soldiers killing Russian soldiers,” the foreign secretary said in an interview in the western city of Lviv on Friday, having met President Volodymyr Zelenskyy and other top ministers in Kyiv on Thursday.
Lord Cameron made the two-day trip to reaffirm the UK’s commitment to Ukraine, which most recently includes a promise to transfer more of the British military’s own stockpiles of weapons, including precision-guided bombs and air defence missiles.
The UK has also promised at least £3bn worth of military assistance annually.
But Western nations are failing to deliver munitions to Ukraine’s frontline as quickly as Russia is rearming its military, with Russian troops gaining ground in the east in recent months.
President Putin put his economy on a war footing when he launched his full-scale invasion of Ukraine in February 2022 – something NATO allies are only slowly starting to move towards.
Rishi Sunak said last week he would increase UK defence spending to 2.5% of national income by 2030 – claiming this equated to an additional £75bn in investment.
He also said he was putting the UK defence industry on a “war footing” and added £10bn of new funding would be dedicated to domestic munitions production over the next decade.
Asked how Britain could force defence companies like BAE Systems, Thales and Babcock – that have to answer to their shareholders, not the government – to increase production lines at the required rate and scale without some kind of legislation to force them to act, Lord Cameron revealed the plan for a new envoy for defence production.
“There is a specific munitions strategy of £10bn which will do exactly what you are talking about – the ramping up of production,” he said.
“But crucially I think we can go further than that in terms of a specific defence envoy with the ability from the prime minister to go out and make sure we are doing those muti-year deals with the defence suppliers because we need not only to provide more weapons to Ukraine, we need to build up our own stocks.
“So this is very important, it is a national priority.
“The prime minister is giving the lead and I think the industry will respond.”
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Pushed on whether the new envoy – whose identity has not yet been revealed – would be the modern-day equivalent of someone like Lord Beaverbrook, who was tasked with expanding aircraft production during the Second World War, Lord Cameron said: “It is the 21st century so there won’t be a Lord Beaverbrook.”
But he signalled that the envoy’s ability to approach industry with a commitment to fund multi-year contracts for munitions would be key – and could also drive down cost.
“It is possible to go to the defence contractors and say to them: ‘You are not going to get the price you might have hoped for year after year after year because we are going to make a contract with you over the coming years to make sure we replenish our ammunition, our artillery, our long rage fires, our missiles’ – those crucial things vital for Ukraine but also vital for our own defence.”
As for why the government needed to appoint a specific envoy to this role, Lord Cameron said: “You need I think to have that direct line to the prime minister to make sure we are making this the national priority it clearly is.”
Cameron warns of ‘dangerous future’
Turning to the war in Ukraine, the foreign secretary said Europe faced “two futures” – one in which Ukrainian forces, backed by Western weapons, are able to push out the Russian invaders and secure what he called a “just peace”.
“That is a footing on which you can see great security and prosperity for us and for Europe,” he said.
But he warned: “A future in which Putin is successful and Ukraine is pushed back is I think a very dangerous future.”
Nations such as Moldova and even the NATO states of the Baltics would be worried that President Putin might turn his attention towards them next, Lord Cameron said.
In addition, the authoritarian regimes in Iran and China would be watching closely.
“I think we are at an absolutely crucial tipping point in global affairs,” Lord Cameron added.