Britain will still be the worst-performing large economy in the world this year, even after a significant upgrade in its forecasts, according to the International Monetary Fund (IMF).
Stronger than expected economic performance so far this year means UK GDP is on track to contract by 0.3pc across 2023, half the 0.6pc decline the IMF forecast in January, according to its latest World Economic Outlook.
It means that the UK will remain the world’s worst-performing large economy: in Russia, which has been targeted by wide-ranging sanctions from Europe and the US in the wake of the Ukraine war, GDP is forecast to grow by 0.7pc this year.
Britain’s GDP is also expected to shrink more than Germany’s, which is struggling to escape recession and recover from soaring energy prices. The IMF predicts that Europe’s largest economy will shrink 0.1pc, downgraded from 0.1pc growth in January.
Pierre-Olivier Gourinchas, the IMF’s Economic Counsellor, said that although the UK economy had exceeded expectations in the first three months of the year, it faced greater headwinds than other countries due to higher interest rates and its exposure to the energy crisis. He also suggested that Brexit had influenced the IMF’s calculations.
Mr Gournichas added: “There is a higher dependence on energy with a high share of gas, there’s a major negative in terms of trade shock, and there’s a tight labour market and so there has been a need for aggressive tightening of monetary policy.”
The UK also recorded the biggest post-Covid bounce, logging the strongest GDP growth in the G7 in 2022.
The IMF has historically been one of the most pessimistic forecasters for the UK economy. Even with the recent upgrades, its expectations are still below predictions from the Office for Budget Responsibility and the Organisation for Cooperation and Economic Development, which have both forecast a 0.2pc contraction.
But Britain has so far proved the IMF’s forecasters wrong. The 0.3 percentage point upgrade in the UK economic outlook this year was the largest increase in the G7 and one of the largest in the world.