The UK is expected to have the worst major G7 economy this year due to a lack of employees, pricey mortgages, and the continued effects of Brexit, according to the director of a prominent think group.
In response to the International Monetary Fund’s prediction that the UK economy will contract by 0.3% in 2023, the director of the Institute for Fiscal Studies, Paul Johnson, stated that there were unique obstacles inhibiting growth in the United Kingdom.
Tuesday on Radio 4’s Today Programme, Johnson stated that if 2022 and 2023 are viewed combined, the UK’s performance does not appear to be as poor, given that the IMF predicted that its growth rate of 4.1% last year would be the highest among the G7.
But Johnson said other nations were not being hit to the same extent as the UK by shortages of labor – cited by the IMF as one reason holding back the UK. Johnson stated that the UK labor force was a half-million individual smaller than before the pandemic due to early retirement and fewer EU immigrants.
“This does not affect any other European country… That’s a special difficulty for us,” the IFS director stated. He also cited “challenges from Brexit” and the rapid impact of rising interest rates on mortgage payments.
The Bank of England is anticipated to raise interest rates by 0.5 percentage points to 4% on Thursday. Despite the IMF’s bleak projections in its World Economic Outlook update. However, Threadneedle Street is also anticipated to increase its economic estimates following a stronger-than-expected performance in late 2022.
Top economist believes Brexit, labour shortages
Richard Holden, the transport minister, said the IMF had been wrong previously and predicted a stronger year for the UK. Holden stated on Times Radio, “They’ve been wrong for the past two years. And the OECD has also been wrong for the past two years. I believe Britain can surpass such forecasts.”
Rachel Reeves, Labour’s shadow chancellor, said: “Britain has great potential – but too many signals are pointing towards extremely difficult times for our economy, leaving us falling behind our peers.
“The government should be doing all it can to make our economy stronger and to get it expanding. It is the only way we can stop lurching from one crisis to the next. As we have been doing for far too long. Labour has a viable growth plan that can restore our economy’s health.”
Sophie Lund-Yates, a senior stock analyst at Hargreaves Lansdown, stated, “The United Kingdom faces several unique challenges, including its overexposure to high energy retail costs, which are putting pressure on household budgets. Additionally, the United Kingdom has a huge labor issue. Which was initially precipitated by Brexit but has since been exacerbated by a dwindling workforce since the pandemic.
“Mortgage rates in the United Kingdom are also unreasonably high. Which adds to the burden on the economy by limiting discretionary spending. Ultimately, the United Kingdom has an issue with productivity and demand, which, when combined, creates a very tough climate.
There is a possibility that the United Kingdom will perform better than the IMF predicts. Given recent upgrades to estimates from other organizations.
