How much should we care what the IMF thinks?
The IMF #TheIMF
It was only on Friday that the Chancellor of the Exchequer, Jeremy Hunt, decried the forecasts of “doom” about the UK economy, taking on “the declinists” those who he said were permanently pessimistic about Britain’s fate.
When I pointed out to him that it was business investment and household income that really was declining he replied: “You can choose statistics, I could also say to you that last year, we became only the third trillion dollar tech economy in the world… we can find statistics that make one case or another… but the UK has enormously exciting opportunities.”
Well, last night the International Monetary Fund rather seemed to join the upper tier of those sceptics with its latest world economic forecast update.
A forecast such as this on its own, even from the world’s most important international economic institution is just that, a forecast. But the value can come when it tells a different story across all the countries it surveys.
In this case, the UK looks like an outlier. It was the only country to see a marked downgrade to growth forecasts since the autumn, and the only major G7 country to be forecast to contract this year.
Indeed it was the only country in all the new set of 15 forecasts not showing growth over 2023, including sanctions-hit Russia.
The short answer is that the UK economic environment has worsened after September’s mini-budget. The tax and interest rate rises required will slow the UK economy in particular alongside the more common shock of still high energy prices.
The longer answer is that the IMF is not the only august institution wondering about economic hits affecting the UK. The Bank of England is now increasingly asking why the UK has not seen the full return of its workforce after the pandemic, unlike other major economies.
A workforce shrinkage of this kind would affect both the size of the economy and how long high inflation hangs around. The Bank’s new thinking on this is likely to be revealed on Thursday when it publishes its new forecast. The government’s own forecasters on this will tell the Treasury tomorrow if factors such as this might affect the level of borrowing.
The other consideration on today’s Brexit anniversary, is whether leaving the EU has been a factor.
Certainly, most economic analyses at the time pointed to higher levels of inflation and lower levels of growth than similar economies, as a consequence of less competition and more trade and employment barriers with our neighbours.
A lengthy House of Lords Economic committee study did point to Brexit factors in the workforce shortage, but not necessarily the biggest ones.
The roots of today’s IMF forecast downgrade are more firmly in very recent UK economic developments. It may also be that the IMF is somewhat optimistic about EU nations, especially given Germany’s surprise last quarter fall in actual GDP data, released yesterday.
But if this predicted poorer relative performance by the UK on growth and inflation comes to pass this year, and is sustained, then it can not just be down to common “global factors”.