Beautiful Virgin Islands

Tuesday, Jun 03, 2025

IMF demands interest rate rises as UK set for weakest growth among G7 economies next year

IMF demands interest rate rises as UK set for weakest growth among G7 economies next year

The International Monetary Fund's prescription for dealing with the cost of living crisis is likely to be seized upon by Rishi Sunak's supporters as evidence that his blueprint is the right course for the UK government to take.

The world's lender of last resort has appealed for central banks to raise interest rates and for governments to take a responsible stance with public finances while warning of a harder impact from the global inflation shock.

The International Monetary Fund (IMF) used its updated World Economic Outlook to take another red pen to growth forecasts as economies battle the impact of rising prices.

It said that growth was "stalling" in the world's three largest economies (the US, China and eurozone) as a consequence of the deteriorating picture for inflation, linked to the COVID pandemic and latterly Russia's war in Ukraine, forecasting that the problem would remain more stubborn than predicted in its previous update.

Chillingly it warned that under a "plausible" scenario, downside risks for the global economy including a complete shutdown in Russian gas supplies to Europe and prolonged zero-COVID lockdowns in China would result in one of the worst performances for output since 1970 if realised.

The fund's new forecasts saw global growth of 3.2% for 2022 - a downwards revision of 0.4% on April's forecast.

Much of that figure was accounted for by a massive 1.4% downgrade for the United States - the world's largest economy.

The IMF said it now expected growth of just 2.3% this year as a result of an inflation rate that, like in the UK, was at a 40-year high.

It said that disruption to trade flows with China was another big factor behind the downgrade and warned growth would stall further, to just 1%, in 2023.



The report downgraded its expectations for Chinese growth this year by 1.1% to just 3.3% as it also faces inflationary pressures but also battles COVID outbreaks through shutdowns of major cities that have inflicted huge damage on its manufacturing sector.

The UK, the IMF projected, would see a growth of 3.2% this year - above those of its biggest competitors including France and Germany - but it repeated its forecast that output would ease significantly to just 0.5% in 2023 to become the slowest among the G7.

Russia was tipped to see its economy contract by 6% this year and by 3.5% in 2023 as it grapples with the effects of Western sanctions.

The sanctions imposed over the war in Ukraine have exacerbated the global inflation problem as it has forced countries to scramble for alternative supplies of key commodities including wheat, sunflower oil, oil and natural gas.

The IMF urged central bank and government action to help bring down inflationary pressures, with its fiscal prescription favouring the stance taken by former chancellor Rishi Sunak as he battles Liz Truss for the Tory leadership and keys to Number 10.

"With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers", the fund said.

"Tighter monetary policy will inevitably have real economic costs, but the delay will only exacerbate them.

"Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending."

The Conservative leadership race has been dominated by the candidates' approach to the cost of living crisis.

Ms Truss, the foreign secretary, favours a "bold" tax cut agenda to prevent the economy from going into reverse while the former occupant of Number 11 has ruled out giveaways in the short term for fear of fuelling inflation further.

The Bank of England, for its part, has raised the Bank rate at each meeting since December last year but is under pressure to opt for a sharper hike at its meeting early next month.

Governor Andrew Bailey has said that a 50 basis points increase, which would take its core rate to 1.75%, is on the table but not necessarily on the cards.

Pierre-Olivier Gourinchas, the fund's chief economist, wrote: "Tighter monetary policy will inevitably have real economic costs, but delaying it will only exacerbate the hardship.

"Central banks that have started tightening should stay the course until inflation is tamed."

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
France Implements Nationwide Outdoor Smoking Ban to Protect Children
German Chancellor Merz Keeps Putin Guessing on Missile Strategy
Mandelson Criticizes UK's 'Fetish' for Abandoning EU Regulations
British Fishing Boat Owner Fined €30,000 by French Authorities
Dutch government falls as far-right leader Wilders quits coalition
Harvard Urges US to Unfreeze Funds for Public Health Research
Businessman Mauled by Lion at Luxury Namibian Lodge
Researchers Consider New Destinations Beyond the U.S.
53-Year-Old Doctor Claims Biological Age of 23
Trump Struggles to Secure Trade Deals With China and Europe
Russia to Return 6,000 Corpses Under Ukraine Prisoner Swap Deal
Microsoft Lays Off Hundreds More Amid Restructuring
Harvey Weinstein’s Publicist Embraces Notoriety
Macron and Meloni Seek Unity Despite Tensions
Trump Administration Accused of Obstructing Deportation Cases
Newark Mayor Sues Over Arrest at Immigration Facility
Center-Left Candidate Projected to Win South Korean Presidency
Trump’s Tariffs Predicted to Stall Global Economic Growth
South Korea’s President-Elect Expected to Take Softer Line on Trump and North Korea
Trump’s China Strategy Remains a Geopolitical Puzzle
Ukraine Executes Long-Range Drone Strikes on Russian Airbases
Conservative Karol Nawrocki wins Poland’s presidential election
Study Identifies Potential Radicalization Risk Among Over One Million Muslims in Germany
Good news: Annalena Baerbock Elected President of the UN General Assembly
Apple Appeals EU Law Over User Data Sharing Requirements
South Africa: "First Black Bank" Collapses after Being Looted by Owners
Poland will now withdraw from the EU migration pact after pro-Trump nationalist wins Election
"That's Disgusting, Don’t Say It Again": The Trump Joke That Made the President Boil
Trump Cancels NASA Nominee Over Democratic Donations
Paris Saint-Germain's Greatest Triumph Is Football’s Lowest Point
OnlyFans for Sale: From Lockdown Lifeline to Eight-Billion-Dollar Empire
Mayor’s Security Officer Implicated | Shocking New Details Emerge in NYC Kidnapping Case
Hegseth Warns of Potential Chinese Military Action Against Taiwan
OPEC+ Agrees to Increase Oil Output for Third Consecutive Month
Jamie Dimon Warns U.S. Bond Market Faces Pressure from Rising Debt
Turkey Detains Istanbul Officials Amid Anti-Corruption Crackdown
Taylor Swift Gains Ownership of Her First Six Albums
Bangkok Ranked World's Top City for Remote Work in 2025
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
×