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UK set for slowest growth in G7 as Ukraine war hits global economy

The war in Ukraine will "severely set back" the global economic recovery with the UK hit harder than most, the International Monetary Fund has said.

The conflict is driving up prices for food and fuel which the international body expects to slow growth globally.

It has cut its global forecast and also downgraded its outlook for the UK.

This means the UK will no longer be the fastest growing economy in the G7 group of leading Western nations, and will be the slowest in 2023, it says.

The body says that UK growth will slow as price pressures lead households to cut spending, while rising interest rates are expected to "cool investment".

The UK's economy is now predicted to grow by 3.7% this year, down from the previous forecast of 4.7% made in January.

However, next year, the UK is expected to have the slowest growth in the G7 and across Europe's main economies, at just 1.2%, a near halving from the 2.3% expected previously.

The 2023 UK figure is the slowest apart from heavily-sanctioned Russia in the wider G20 grouping, which includes nations such as China and India.

The IMF said that the UK was the fastest growing G7 economy in 2021, and is forecast to be the second fastest in 2022.

The low UK growth rates forecast in 2023 are in part due to the UK rebounding more quickly from the pandemic than some of its G7 peers.

However, the UK is also wrestling with high inflation, which will hit growth in 2023, as people cut spending as their real income shrinks, the IMF said. The organisation expects inflation to peak in late 2022 at 9%.

It said rising interest rates will also slow the UK economy in 2023 and 2023, while government policies such as getting rid of certain tax breaks will reduce business investment at that time.

In addition, Brexit will hold back export growth, the IMF said, and it will continue to make pandemic-related labour supply "scarring" worse by reducing immigration.

"However, the impact of Brexit is spread over several years and is not the primary driver of the slowdown in 2023," a spokesperson for the organisation added.

'Major shock'

The IMF works with its 189 member countries to try to stabilise the global economy, including issuing short-term loans and assistance to countries who are struggling.

It said inflation was now a "clear and present danger" in many countries and the situation has added to supply strains from the coronavirus pandemic.

"In the matter of a few weeks, the world has yet again experienced a major, transformative shock," IMF director of research Pierre-Olivier Gourinchas wrote in the organisation's 2022 World Economic Outlook.

"Just as a durable recovery from the pandemic-induced global economic collapse appeared in sight, the war has created the very real prospect that a large part of the recent gains will be erased."

The organisation said it expected global growth of just 3.6% this year, down nearly a percentage point from its forecast before the war.

The World Bank also said it was lowering its growth forecast from 4.1% to 3.2%.

The conflict has already devastated the economies of Ukraine and Russia, which the West cut off from key trade and financial networks with sanctions following the invasion.

Ukraine is facing a severe contraction of 35% or more this year, while Russia's economy is expected to shrink by 8.5%, the IMF said.

But with Russia a major energy producer and key supplier of staples such as wheat and corn alongside Ukraine, the consequences will ripple far beyond their borders, the IMF warned.


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