IMF downgrades UK growth forecast for this year to 4.5 per cent as renewed Covid lockdowns smother recovery
- The IMF has downgraded its forecast for the UK’s growth amid fresh lockdowns
- Body now expects 4.5 per cent expansion this year as rest of Europe suffers
- Wider outlook for the world has improved and hope for vaccines to kick in soon
The respected body slashed estimates for the British economy by 1.4 percentage points from its October figure, as well as predicting more gloom for European countries.
However, it said the rollout of vaccines should mean a stronger performance globally, with the US and Japan in a better position than expected.
The grim picture emerged as the UK looks on track for a double dip recession, with draconian restrictions once again wreaking havoc on businesses. Figures today showed that unemployment has risen to a five-year peak, even though the furlough scheme is still masking the worst effects.
The IMF slashed estimates for the British economy by 1.4 percentage points from its October figure, as well as predicting more gloom for European countries.
Figures today showed that unemployment has risen to a five-year peak, even though the furlough scheme is still masking the worst effects
UK jobless rate hits five-year high
The UK’s jobless rate has crept up to 5 per cent – the highest level since 2016 – as employment slides, it was revealed today.
Official figures showed the unemployment rate was up 0.6 percentage points between September and November compared to the previous quarter.
Meanwhile, the employment rate was down 0.4 points quarter-on-quarter. And the numbers on payroll was 828,000 lower than the level last February 2020 – although it rose slightly in December.
However, it seems the true scale of the damage to the jobs market is still being masked by the huge furlough scheme.
In percentage terms growth will be high by historical standards over the coming years, but only because the scale of the downturn last year was so huge that the economy is starting from a lower base.
The IMF estimates the UK was the worst-hit of the world’s seven largest advanced economies last year, suffering a 10 per cent decline.
Only Spain – which is outside the top seven – suffered more with a 11.1 per cent fall, although there have been questions about how comparable the international figures are.
The Bank of England forecast in November that the UK economy would regain its pre-pandemic level in the first quarter of next year.
UK GDP is expected to recover by 4.5 per cent this year, compared to the 5.9 per cent the IMF anticipated before.
Brexit disruption in the first quarter this year is also likely to reduce output by around 1 per cent, according to the updated World Economic Outlook.
But the prospects for 2022 appear better, with a 5 per cent expansion on the cards.
The 19 Eurozone countries have also been downgraded but by less and will collectively register 4.2 per cent growth this year, after a 7.2 per cent tumble.
The world’s output shrank 3.5 per cent in 2020, the worst year since World War II, but the IMF suggested it will expand 5.5 per cent this year – more than the 5.2 per cent previously pencilled in.
The 190-country lending organisation said vaccines should contain the spread of the virus and allow governments around the world to ease lockdowns. It also pointed to major government stimulus programs in the US and Japan.
However, the IMF cautioned that coronavirus mutations could cloud the outlook.
Coronavirus is thought to have inflicted the worst hit to UK GDP since the Great Frost of 1709
‘Much depends on the outcome of this race between a mutating virus and vaccines and the ability of policies to provide effective support until the pandemic ends,’ IMF chief economist Gita Gopinath said at a press briefing.
‘There remains tremendous uncertainty.’
The IMF said that the US economy – still the world’s biggest – to expand 5.1 per cent this year after diving 3.4 per cent in 2020.
Despite being the first place where the virus emerged, China is expected to record 8.1 per cent growth after managing a 2.3 per cent last year.
Japan is forecast to grow 3.1 per cent, reversing a 5.1 per cent decline in 2020.
The IMF gave India a big upgrade, thanks to a faster-than-expected recovery at its factories and farms.
It is forecast to expand 11.5 per cent in 2021, fastest among the major economies, after a decline of 8 per cent.
Shadow chancellor Anneliese Dodds said: ‘The UK had the worst recession of any major economy when the crisis hit – and now we know it had the weakest growth of any major economy through 2020 as well.
‘Given these awful figures, the Chancellor should be supporting families through this crisis. Instead, he’s hitting them with a triple hammer blow to their pockets of pay freezes, council tax hikes and social security cuts.
‘This economically illiterate approach will harm our recovery and lead to long-term scarring.’