Released this afternoon, in the IMF’s latest World Economic Outlook, the IMF’s downgrade of forecasted economic growth in the UK this year to 0.8%, from the 1.3% prediction made in January before hostilities in the Gulf began. Clearly this isn’t great news for Chancellor Rachel Reeves – or the UK economy.
Sharing her reaction to the IMF outlook, Lindsay James, investment strategist at Quilter said:
“The IMF has delivered a severe reality check to Rachel Reeves and the rest of UK government, with economic growth forecasts slashed heavily. It now expected economic growth for this year to come in at 0.8%, down from the 1.3% growth that was forecasted at the beginning of the year. The conflict in the Middle East has effectively blown a hole open in the economic plan the Labour government was embarking on, and without a significant calming of the tensions, the UK is expected to fare the worst of the world’s developed economies.
“The government came into this year hoping it would be one of stabilisation, with Budget concerns now out of the picture and the fiscal headroom being largened. The US-Iran war, however, has blown that off course and instead resulted in the UK suffering from increased energy prices and the potential for an inflationary shock. With interest rate cuts now firmly off the cards for now, and the potential for hikes very much live, economic growth is going to be hard to come by.
“It is hoped that much of this economic shock will be short-lived, provided the conflict does not drag on. The IMF expects the UK to recover to become the fastest growing G7 European economy in 2027 with growth of 1.3%, but with inflation also expected to be the highest amongst peers, there remains risk that further revisions could be made.
“None of this, of course, is helped by the fact that the longer the conflict goes on, the greater potential there is for an economic recession. The original ceasefire agreed already appears to have broken down, and while the bombing may have calmed, tensions remain ratcheted up. Even with any resolution, things are unlikely to go back to normal and we should now have to get familiar with elevated oil and gas prices for the foreseeable future.”
