THE UK will be the only major economy to shrink this year, the International Monetary Fund has predicted.
In a blow to millions of households, the IMF forecasted the UK economy will contract by 0.6% in 2023.
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In October, it previously predicted the UK economy would grow by 0.3% this year.
The financial agency of the United Nations (UN) said the UK economy would grow by 0.9% in 2024 though, up from 0.6% previously forecast.
Its latest predictions for this year put the UK economy far behind the other six advanced countries in the G7 group.
The IMF’s 2023 predictions showed growth of 1.4% in the United States, 0.1% in Germany, 0.7% in France, 0.6% in Italy, 1.8% in Japan and 1.5% in Canada.
It comes as the UK grapples with public sector strikes over pay and predictions the economy is heading for a recession.
Inflation, a measure of the price of everyday goods and services, stood at 10.5% in December, after falling from 10.7% the previous month.
In a boost, the IMF predicted that the global slowdown will be shallower than first feared.
It upgraded its global growth forecast, to 2.9% in 2023 from the 2.7% predicted in October due to China reopening after strict coronavirus lockdowns.
It added it believes global inflation has passed its highest point, and will fall from 8.8% in 2022 to 6.6% in 2023 and then 4.3% in 2024.
It said the fall will come as interest rate hikes by central banks start to cool demand and slow price rises.
But it warned that, in the UK and Europe, surging prices and the impact of action taken to rein in inflation, will continue to weigh on the economy.
It said: “Consumer confidence and business sentiment have worsened.
“With inflation at about 10% or above in several euro area countries and the United Kingdom, household budgets remain stretched.
“The accelerated pace of rate increases by the Bank of England and the European Central Bank is tightening financial conditions and cooling demand in the housing sector and beyond.”
Following the IMF’s predictions, Jeremy Hunt said: “The Governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted, however these figures confirm we are not immune to the pressures hitting nearly all advanced economies.
“Short-term challenges should not obscure our long-term prospects – the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”
What is a recession?
A country is in recession when its economy shrinks, rather than grows, over a sustained period of time.
It is calculated using something called Gross Domestic Product (GDP), which in the UK is the value of all the goods and services added up in pounds.
If GDP falls over two quarters (or six months), a country is said to be in recession.
A recession is bad news, because they generally lead to unemployment and wage stagnation.
This in turn means the government gets less tax, which could mean cuts to services and benefits, or that interest rates go up.
There are lots of different factors that can cause a country to tip into a recession.
What does a recession mean for your money?
Job losses are common, as companies try to cut their costs to stay afloat.
Businesses may also go into administration or go bust.
The Government may make cut backs or raise taxes to try and shore up its finances – alternatively, it may decide to increase budgets to spend its way out of the problem.
If inflation soars, people will find their wages cannot keep up and their money doesn’t go as far as it used to.
This is something we are seeing in the current cost of living crisis with everything from energy bills, petrol prices and groceries going up.
In a recession, the number of people in debt and arrears is likely to rise, and there could be more defaults on loans and mortgages or repossessions and bankruptcies.
How to protect your finances
If you’re worried about your finances, there are steps you can take to try and keep your cash safe.
Go through all your bank statements and accounts so you know exactly where your money is going each month.
Of course, there are bills that you can’t avoid paying – but that doesn’t mean you can’t cut back in other ways.
For example, you could save money by moving to a cheaper mobile phone tariff or axing subscriptions you don’t need.
When money is tight, it can be tempting to ignore debts – but this will only make your financial situation worse.
Stay on top of what you owe and always repay priority debts.
There are also plenty of organisations where you can seek debt advice for free.
These include:
You should also check what benefits you are eligible for.
Entitledto’s free calculator works out whether you qualify for various benefits, tax credits and Universal Credit.
If you don’t want to register, consumer group moneysavingexpert.com and charity StepChange both have benefits tools powered by Entitledto’s data that let you save your results without logging in.
There is also emergency funding available for struggling households, which is dished out by local councils.
The Household Support Fund is designed to help those in most need with payments towards the rising cost of food, energy, and water bills.
Help available varies, but you could get free cash, food vouchers, and help for bills like rent and energy.
You could also get similar help from your council under the welfare assistance scheme.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk
