Cost of living latest: What does the IMF's prediction for the UK economy mean for consumers? (2023)

Key points
  • What does the IMF forecast for the UK economy means for families?| IMF explains why UK has been downgraded
  • Families face £788 addition to food bill
  • Tesco hot deli shake-up to affect thousands of jobs
  • Rising support for unions despite widespread strikes, poll finds
  • Money saving hacks:How to haggle for the best broadband | Saving money on pets| How to ask for a pay rise
  • Live reporting by Megan Baynes, cost of living reporter

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What does the IMF downgrade mean for consumers?

The UK had previously been forecast to grow by 0.3% this year and 0.6% next year.

Now, according to the International Monetary Fund, it should expect -0.6% this year and 0.9% growth in 2024.

But what does this mean?

If this is correct, it means the UK will be one of the only places in the world where the economy is smaller at the end of the year than at the beginning.

The IMF has explained that it expects the UK economy to perform comparatively badly this year due to "tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets".

This basically means less government spending alongside higher energy bills, grocery costs, and soaring inflation leave households with less wiggle room in their budget.

A shrinking economy means consumers have less disposable income to spend, which in turn means less money going into businesses, which then find themselves forced to cut back - including on staff.

Until recently, Jeremy Hunt, the chancellor, 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.

Yet the IMF 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%.


Families face '£788 addition to annual food bill'

By James Sillars, business reporter

Families face a potential rise of nearly £800 a year in their food bills as grocery inflation reached a record high.

The annual rate for the four weeks to 22 January was 16.7%, according to closely watched industry data from the Kantar Worldpanel agency that abruptly ended hopes prices would fall more quickly.

It marked a steep increase on the 14.4% rate in December, when discounting by chains in the run-up to the festive season helped temper the pace of price increases.

The report said the record rate meant that families faced a potential £788 annual rise in the cost of their regular shopping basket.


Rising public support for unions despite widespread strikes - Sky News poll

Support for trade unions is rising even though strike action is bringing public services to a standstill, Sky News polling shows.

Industrial relations are at their most fractious since the 1980s, with the country having lost more than a million working days to strikes last year.

Despite this, sympathy for striking public sector workers has risen over the past couple of months.

Exclusive polling commissioned by Sky News shows that the public increasingly think that trade unions play a positive role in society.

A survey of more than 2,000 adults found that 37% support unions, up from 35% in November.

A smaller proportion - 28% - said unions play a negative role in society, down from 34% in November.

The findings suggest that the government, which is refusing to deliver inflation-matched pay rises, may not be able to rely on waning support for strike action.

Support for unions has increased as the wave of strike action has spread from the transport and communication sectors to the NHS.


Analysis: The story is stark - Britain is now an outlier

By Ed Conway, economics and data editor

Let’s start with the provisos. There are a few reasons why the UK comes out of these latest International Monetary Fund forecasts especially badly.

The main one is that the previous IMF forecast, produced in October, didn’t reflect the impact of the mini-budget. That partly explains why the UK got a downgrade when most other countries saw upgrades to their prospects.

Then there’s the fact that the IMF seems to be taking a particularly pessimistic view on how quickly inflation will fall in the UK. This may or may not be right but it certainly paints the UK in a worse light than most of its peers.

But neither of these provisos will be of much comfort in the Treasury. As recently as a few weeks ago it was able to justify the country's weak economic performance by pointing to October's IMF forecasts, which showed that a third of the world's economies were facing a recession and that the UK, weak as it was, would end up somewhere in the middle of the pack of industrialised economies.

Now, the story is far more stark. Britain is an outlier: the only major economy to see its economy contract this year, the only nation with a recessionary forecast.

The fact that even Russia, which is facing the full might of Western sanctions, not to mention a brain drain as its citizens abandon ship, is slated to do better this year and next is doubly humiliating.

It's possible, as I wrote above, that the IMF has got things wrong. It's also certainly the case that things are looking a touch better here than they were only a few months ago. Contrary to the Bank of England's forecasts, the UK is not yet in recession (two successive quarters of economic contraction).

The problem is that other countries seem to be bouncing back far faster than this one. This seems to come back to a few issues. The IMF points to the fact that Britain is especially sensitive to high gas prices (largely because we still heat most of our homes with it). It points to the fact that a large chunk of the workforce left the labour market during the pandemic and hasn't come back.

But there's another, deeper issue. While other countries around the world (most notably the US) are pouring billions of dollars of investment into their green energy industries, the Sunak government has just slashed public investment totals. It is raising taxes into this slowdown, even as the Bank raises interest rates. That will exacerbate the cost of living crisis. Then there's Brexit, the cause of further trade friction which is also depressing economic growth.

It is a toxic cocktail of factors, some unfortunate, some avoidable, which have landed the UK where it is today. The upshot is grisly forecasts like the one we've just seen from the IMF.


Tesco surprise bid for Paperchase brand

More news from Tesco this morning. The retail chain is in talks to buy the Paperchase brand and other intellectual property.


Tesco to shake up management roles and shut hot delis - impacting thousands of jobs

Tesco said it will shake up its shop management roles and shut remaining counters and hot delis in an overhaul that will impact around 2,100 jobs.

The supermarket giant is reducing the number of lead and team managers in large shops as part of a shake-up of its management structure, which will impact around 1,750 workers.

It will also introduce around 1,800 new shift leader roles in stores, leading operational duties on the shop floor.

From 26 February it will close its remaining counters and hot delis at stores, having previously removed counters from the majority of shops.

Tesco said all affected workers will be offered alternative roles. It did not say how many staff work on counters and delis.

The retailer also said 350 workers will be impacted by a series of localised changes, such as the closure of eight pharmacies and reduced hours at some in-store post offices.

Tesco UK and ROI chief executive officer, Jason Tarry, said: "These are difficult decisions to make, but they are necessary to ensure we remain focused on delivering value for our customers wherever we can, as well as ensuring our store offer reflects what our customers value the most.

"Our priority is to support those colleagues impacted and help find alternative roles within our business from the vacancies and newly created roles we have available."


IMF explains forecast for UK economy

What are the three main reasons behind the UK's forecast this morning?

The poor growth was blamed on three factors: the UK's dependency on gas - which has rocketed since the invasion of Ukraine; the fact employment has not returned to pre-pandemic levels; and increasing interest rates which have made mortgage payments more expensive.

Pierre-Olivier Gourinchas the director of research of the IMF laid out the rationale at a press conference on Tuesday morning.

The UK has a larger share of energy that comes from natural gas, he explained, "with higher pass through to final consumers" which has resulted in a "stronger cost of living crisis in the UK".

Mr Gourinchas explains below...


UK economy to fare worse than any other country in the developed world this year - including Russia

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.


Good morning

Welcome to today's cost of living blog as the UK wakes up to the news its economic reputation has been dealt a further blow from the International Monetary Fund.


Good night

That's all from us for today.

Join us again tomorrow when we will be bringing you the latest on the cost of living crisis in the UK.


What is IMF prediction for UK? ›

The International Monetary Fund expects the U.K. economy to contract by 0.6% this year, having previously forecast slight growth. It is the only “advanced economy” it forecast to decline, and was worse than the 0.3% fall it sees Russia's economy experiencing.

What is the prediction for the UK economy? ›

The UK labour market has suffered from high levels of economic inactivity in 2022. However, we expect that more than 300,000 UK workers could rejoin the labor market in 2023, potentially closing the UK's economic inactivity gap with the US. This should help to reduce staff shortages in highly skilled sectors.

What is IMF prediction for 2023? ›

We have 1.7 percent expected in 2023. That's a 0.5 percentage point above than our last forecast. So, this is largely the influence of external forces.

What is IMF growth forecast for 2024? ›

The IMF predicts global inflation to cool to 6.6 percent in 2023 and 4.3 percent in 2024, which is still above pre-pandemic levels of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022.

What is the prediction of the International Monetary Fund? ›

The IMF projects global growth to fall from 3.4% in 2022 to 2.9% in 2023, and then rise to 3.1% in 2024. Inflation is peaking amid low growth. This is a modal window.

Is the UK economy improving? ›

Economic Outlooks

The UK is estimated to have entered a recession in the third quarter of 2022, which could last until the end of 2023. But while the duration of the current downturn may be relatively long, the drop in activity is expected to be mild by historical comparisons.

What is the forecast for the UK economy in 2023? ›

The UK economy will shrink and perform worse than other advanced economies, including Russia, as the cost of living continues to hit households, the International Monetary Fund has said. The IMF said the economy will contract by 0.6% in 2023, rather than grow slightly as previously predicted.

How much is the UK economy growing? ›

GDP monthly estimate, UK: December 2022

Monthly real gross domestic product (GDP) is estimated to have fallen by 0.5% in December 2022, following an unrevised growth of 0.1% in November 2022, and annual GDP output is estimated to have grown by 4.1% in 2022, following growth of 7.4% in 2021.

Is the UK economy still growing? ›

Between 1949 and 2020, the year with the highest annual GDP growth rate was 1973, when the UK economy grew by 6.5 percent.
Annual growth of gross domestic product in the United Kingdom from 1949 to 2022.
CharacteristicAnnual growth
9 more rows

What is the US debt 2023? ›

In 2023, debt held by the public is projected to grow in dollar terms, to $26,033 billion, but to fall as a percent of GDP, to 101.8 percent. After 2023, debt held by the public as a percent of GDP is projected to gradually increase, reaching 106.7 percent in 2032.

What is the likelihood of recession 2023? ›

It's everywhere: A recent poll of economists from the Wall Street Journal pegged the recession chances in 2023 at 61%. Even 96-year-old former Federal Reserve Chairman Alan Greenspan has weighed in, saying that a recession is “the most likely outcome” given the current economic trajectory.

Which country will be the next economic superpower? ›

Political experts have also considered India as one of the possible emerging superpowers of the world along with China, Brazil, Russia, and the European Union. Currently, only the United States fulfills the criteria to be considered a global superpower.

What is the largest economy in the world 2023? ›

The economy of the United States is the largest economy in the world, with a nominal GDP of $23.00 trillion and a GDP growth rate of 5.7%.

What is IMF growth forecast? ›

In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020.

Why is China growing so fast IMF? ›

IMF Working Papers

The productivity gains largely reflect market-oriented reforms, especially the expansion of the nonstate sector, as well as China's “open door” policy that brought about a dramatic expansion in foreign trade and foreign direct investment.

Is IMF good for a country? ›

The IMF promotes global macroeconomic and financial stability and provides policy advice and capacity development support to help countries build and maintain strong economies.

What is the purpose of the IMF? ›

The IMF is an organization of 189 member countries that works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

What goals does the International Monetary Fund serve today quizlet? ›

What goals does the International Monetary Fund serve today? Correct Answers: - It promotes the structural readjustment of some economies. - It facilitates international monetary exchange.

What makes the UK economy strong? ›

Its quality of life is generally considered high, and the economy is quite diversified. The sectors that contribute most to the U.K.'s GDP are services, manufacturing, construction, and tourism.

Will England go into a recession? ›

The UK economy was stagnant at the end of 2022, with a short recession expected in 2023. Consumer confidence and business output are falling, but businesses have been more optimistic in January than in the previous eight months, partly due to easing cost pressures and falling energy prices.

Why is inflation in UK so high? ›

Consumer prices, as measured by the Consumer Prices Index (CPI), were 10.1% higher in January 2023 than a year before. Increases in the costs of consumer goods, underpinned by strong demand from consumers and supply chain bottlenecks, have been factors causing rising inflation.

What is the economic forecast for 2025 UK? ›

Growth of 2.2% is expected in 2025, down from the previously forecast 2.3%. The UK economy is expected to have grown 4.1% in 2022.

Why is the UK economy struggling? ›

Suren Thiru, economics director at ICAEW, said: “These findings suggest that the economy went from bad to worse at the end of last year. The drop in confidence largely reflects the lethal combination of sky-high inflation and deteriorating customer demand that many firms are struggling to grapple with.”

Who has the biggest economy in the UK? ›

The United Kingdom is one of the most globalised economies, and comprises England, Scotland, Wales and Northern Ireland.
Economy of the United Kingdom.
GDP per capita rank21st (nominal; 2022) 26th (PPP; 2022)
GDP by sectoragriculture: 0.7% industry: 20.2% services: 79.2% (2017 est.)
41 more rows

Is US economy bigger than UK? ›

Heading into 2022, the Centre for Economics and Business Research (CEBR) ranked the UK as the fifth-largest global economy – second biggest in Europe behind Germany. The US was ranked as the greatest economy in the world where it is forecast to remain until 2031.

Is the UK in economic crisis? ›

The U.K. narrowly avoided entering a recession in 2022, but remains in a tight spot, according to new figures from the Office for National Statistics (ONS) released today. There is a recession when the economy shrinks for two consecutive quarters.

Is British economy in decline? ›

Britain's economy is likely to shrink 0.6% this year, the only advanced nation expected to decline, the International Monetary Fund said last month. The Bank of England expects the slowdown to last throughout 2024, even though it says the recession will be shallower than previously forecast.

How Long Will UK recession last? ›

GDP is expected to fall 0.5% over the course of 2023 and 0.25% in 2024 before recovering its losses in 2025, when 1% growth is expected. But despite this more positive outlook, the Joseph Rowntree Foundation has said “this recession will not feel mild” for those on the lowest incomes.

Can the US pay off its debt? ›

Can the U.S. Pay Off its Debt? As budget deficits are one of the factors that contribute to the national debt, the U.S. can take measures to pay off its debt through budget surpluses.

How much does the US owe China? ›

2021, China owns $1.095 trillion of the total $28 trillion U.S. national debt.

How can America get out of debt? ›

Raising taxes and cutting spending are two of the most popular solutions for reducing debt, but politicians may be hesitant to do both. Diverting spending from the military to other sectors may boost job growth, which could spur consumer spending and help the economy.

Will there be a depression in 2023? ›

Unfortunately, this slowdown in economic activity will likely come with a cost: According to Bloomberg's December 2022 survey of economists, there is a 70% chance of a recession in 2023.

Will us go into recession in 2023? ›

The bottom line. Signs point to a recession in 2023, not just in the U.S. but globally, though many experts remain hopeful it will not be too severe. This is good news for everyone, as it could mean fewer people lose their jobs, and household financial impacts will be mild.

Will the US avoid recession? ›

The US economy just proved it's making strides in combating sky-high inflation — and it means a recession this year could be avoided after all. The Consumer Price Index, one measure of inflation, rose 6.5% year-over-year in December, which marked a big drop from the November reading of 7.1%.

Who will be the next superpower after America? ›

By 2050, more countries are likely to be defined as superpowers, joining the United States and creating a multipolar world order. Extrapolating current economic, geopolitical, and demographic trends would suggest that China is likely to become a new superpower, although its economy is currently faltering.

Which country will dominate the world in future? ›

While challenges remain, most experts believe that China will be the new superpower by 2050. China GDP in 2050 is expected to be around $58.5 trillion.

Who has the world strongest economy? ›

With a GDP of 23.32 trillion dollars, the USA is by far the world's largest economy in this ranking for 2021. It is followed by China in second place with a GDP of 17.73 trillion dollars. Canada is also quite far ahead in the international comparison and occupies the ninth place in this ranking.

Who will replace the US as the world's second largest economy by 2050? ›

By 2050, India is projected to be the world's second-largest economy (overtaking the United States) and will account for 15% of the world's total GDP.

Which country will overtake the US as the world's largest economy by 2040? ›

China will continue to lead the chart with its GDP rising from $21.3 trillion to $47.4 trillion by 2040.

What happens when a country goes to IMF? ›

The IMF provides financial assistance and works with governments to ensure responsible spending. The IMF offers various types of loans that are tailored to countries' different needs and specific circumstances. Loans to low-income countries carry a zero interest rate.

What is the impact of IMF on developing countries? ›

The IMF provides broad support to low-income countries through policy advice, capacity-building activities, and concessional financial support – meaning it is provided at below-market interest rates. Concessional support through the Poverty Reduction and Growth Trust (PRGT) is currently interest free.

Why is it called IMF crisis? ›

Due to IMF's involvement in the financial crisis, the term IMF Crisis became a way to refer to the Asian Financial Crisis in countries that were affected.

What is the biggest advantage of China in the world? ›

China ranks first in terms of trade in goods and foreign exchange reserves, and ranks second in terms of its trade in services and consumer market.

Why is China the world's largest leading economy? ›

Causes of China's Economic Growth

Economists generally attribute much of China's rapid economic growth to two main factors: large-scale capital investment (financed by large domestic savings and foreign investment) and rapid productivity growth.

Why is China the most powerful economy in the world explain? ›

China's economy has grown to one of the largest and most powerful in the world over the past few decades. Driven by industrial production and manufacturing exports, China's GDP is actually now the largest in terms of purchasing power parity (PPP) equivalence.

What is the financial outlook for 2023 UK? ›

The UK economy will shrink and perform worse than other advanced economies, including Russia, as the cost of living continues to hit households, the International Monetary Fund has said. The IMF said the economy will contract by 0.6% in 2023, rather than grow slightly as previously predicted.

Will there be a financial crisis UK? ›

The UK recession will be almost as deep as that of Russia, economists predict. In its 2023 macro outlook, Goldman Sachs forecast a 1.2% contraction in U.K. real GDP over the course of this year, well below all other G-10 (Group of Ten) major economies. This would be followed by a 0.9% expansion in 2024.

Will the UK have a financial crisis? ›

Britain is expected to experience only a shallow recession, far less severe than the one after the 2008 financial crisis or in the early 1990s, because unemployment is forecast to increase less than previously thought and traders anticipate that interest rates will not rise much higher.

What is the economic outlook for the UK in 2023? ›

The Bank of England projects that the British economy has entered a shallow recession in the first quarter of 2023 that will last for five quarters, however, as energy prices remain high, and rising market interest rates restrict spending.

What happens if the UK goes into recession? ›

When a country is in a recession, the Bank of England - which is independent of government - would usually be expected to cut interest rates. This makes it cheaper for businesses and households to borrow money which can boost spending and growth.

Is the UK financially stable? ›

UK household and business finances are under growing pressure. Globally, the challenging economic outlook is making it harder for households, businesses and governments to service their debt. In the UK, monthly payments on around 4 million owner occupied mortgages are expected to increase over the next year.

Is the UK in recession 2023? ›

LONDON, Feb 10 (Reuters) - Britain's economy showed zero growth in the final three months of 2022 - enough for it to avoid entering a recession for now - but faces tough prospects in 2023 as households continue to wrestle with double-digit inflation.

Is there a financial crisis coming soon? ›

In a recent poll of economists, the World Economic Forum found that nearly two-thirds of the respondents believe there will be a recession in 2023. But here's the good news: Many analysts expect a relatively mild and short recession, or what is sometimes referred to as recession with a small r.

Is America in financial crisis? ›

According to a general definition of recession—two consecutive quarters of negative gross domestic product (GDP)—the U.S. entered into a recession in the summer of 2022.

Why is the UK in a living crisis? ›

This is caused in part by a rise in inflation in the UK, as well as the economic impact of issues such as the COVID-19 pandemic, Russia's invasion of Ukraine and Brexit. While all in the UK are affected by rising prices, it most substantially affects low-income persons.

What is causing inflation UK? ›

Consumer prices, as measured by the Consumer Prices Index (CPI), were 10.1% higher in January 2023 than a year before. Increases in the costs of consumer goods, underpinned by strong demand from consumers and supply chain bottlenecks, have been factors causing rising inflation.

Is the UK in recession or growth? ›

The figures mean the country narrowly avoided a recession — commonly defined as two quarters of negative growth — following a 0.2% contraction in the third quarter. Overall, GDP increased by an estimated 4% over the course of 2022, following a 7.6% expansion in 2021 as the economy rebounded from the Covid-19 pandemic.


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