Britain to be worst-performing major economy this year, warns IMF; UK mortgage approvals tumble – business live

The surge in energy prices has helped US oil giant Exxon to smash profit records last year.

Exxon has reported it made an adusted profit of around $59bn in 2022, or around $6.7m per hour. That is not only a company record, but a historic high for the Western oil industry, Reuters says.

Reuters’ Sabrina Valle explains:

Exxon’s results far exceeded the then-record $45.2 billion net profit it reported in 2008, when oil hit $142 per barrel, 30% above last year’s average price. Deep cost cuts during the pandemic helped supercharge last year’s earnings.

“Overall earnings and cashflow were up pretty significantly year on year,” Exxon Chief Financial Officer Kathryn Mikells told Reuters. “So that came really from a combination of strong markets, strong throughput, strong production, and really good cost control.”

Exxon said it incurred a $1.3 billion hit to its fourth quarter earnings from a European Union windfall tax that began in the final quarter and from asset impairments. The company is suing the EU, arguing the levy exceeds its legal authority.

Energy news: National Grid has completed the sale of a majority stake in its gas transmission and metering business.

National Grid has sold a 60% equity interest in the business to a consortium comprised of Australia’s Macquarie Asset Management and Canada’s British Columbia Investment Management Corporation.

Back in March last year, National Grid agreed to sell the unit for an enterprise value of about £9.6bn. But in August, Britain reportedly launched an investigation into the deal under new national security rules.

Brexit is costing the UK economy £100bn a year, new analysis by Bloomberg Economics shows.

The analysis highlights how Britain’s exit from the European Union three yeas ago has caused wide-ranging damage, from business investment to the ability of companies to hire workers.

Bloomberg reports:

Economists Ana Andrade and Dan Hanson reckon the economy is 4% smaller than it might have been, with business investment lagging significantly and the shortfall in EU workers widening.

“Did the UK commit an act of economic self-harm when it voted to leave the EU in 2016? The evidence so far still suggests it did,” Andrade and Hanson wrote in a note published Tuesday. “The main takeaway is that the rupture from the single market may have impacted the British economy faster than we, or most other forecasters, expected.”

At 11pm tonight the UK will mark the third anniversary of the moment that it left the European Union.

As my colleague Andrew Sparrow points out, increasingly, by a margin of around 60% to 40%, Britons are saying that this was a mistake.

But ministers are marking the anniversary by talking up the supposed benefits, with prime minister Rishi Sunak insisting the UK has made “huge strides” in harnessing the freedoms unlocked by Brexit to tackle generational challenges.

Sunak says:

And in my first 100 days as prime minister, that momentum hasn’t slowed – we’re cutting red tape for businesses, levelling up through our freeports, and designing our own, fairer farming system to protect the British countryside.

Here’s the latest:

Related: Sunak marks Brexit anniversary by claiming benefits will ‘continue to empower communities’ – UK politics live

The surge in company insolvencies across England and Wales last year should serve as a warning to business owners bracing for a recession to act early, according to Robert Young, R&I director at accountancy firm Azets.

Young says:

The IMF predicts that the UK will be the worst performing of the big economies in 2023. The alarming statistics and gloomy outlook are driven by a perfect storm of working capital and supply chain pressures, as well as rising interest rates and reducing consumer confidence. Business leaders must remain alive to the pressures and must manage their finances – and their stakeholders – very closely.

“In times of economic decline, we expect to see the number of insolvencies increasing. However, it is the number of liquidations that is of particular concern as this highlights the high number of businesses ceasing to trade. Liquidation is an end-of-life process and should be avoided at all costs, as this is very rarely of benefit to the creditors and employees.

“Spotting the warning signs and seeking early advice is absolutely crucial as this will ensure that the widest range of options is available and will maximise the chances of survival.”

The number of companies collapsing into insolvency in England and Wales has hit its highest level since shortly after the financial crisis, after jumping over 50% last year.

There were 22,109 company insolvencies registered in 2022, official figures show, which is the highest number since 2009 and 57% higher than in 2021.

The Insolvency Service, which released the data, says:

The increase compared to 2021 was driven by the highest annual number of Creditors’ Voluntary Liquidations (CVLs) since the start of the series in 1960.

The number of CVLs in 2022 was approximately 21% higher than if the pre-pandemic trend had continued.

In a CVL, a company’s directors decide to voluntarily shut down the company because it has become insolvent and unable to continue to trade.

Gareth Harris, partner at RSM UK Restructuring Advisory, fears that the next six months will be very tough for companies, given the UK’s economic weakness:

‘These Q4 insolvency numbers have confirmed that the “excess insolvencies” which have been put off by the Government Covid support packages are now in free flow. We expect these high liquidation numbers to continue for a couple more quarters before slowly tailing off as the recession softens.

‘But, the next 6 months may be the toughest for UK business since the early 1990s as almost all economic indicators paint a gloomy picture and survival will represent success for many. This will however create opportunity for those strong businesses who may be able to capitalise if they can move quickly.’

Sarah Rayment, managing director at Kroll, fears there will more insolvences, particularly in sectors reliant on consumer spending.

Rayment says:

“Business failures have been suppressed in recent years as many businesses took on Government backed Covid loans through the pandemic in addition to wider support measures.

This year, in a tough macroeconomic environment, we are beginning to see a significant uptick in insolvencies as the support measures unwind, cashflows become tighter together with the wider economic headwinds

The Bank of England has also reported a sharp slowdown in borrowing last month.

Consumers borrowed an additional £0.5 billion in consumer credit, on net, compared with £1.5 billion borrowed in November, today’s data shows.

It’s a sign that consumer spending may have weakened at the end of the year, says Thomas Pugh, economist at audit, tax and consulting firm RSM UK.

Pugh says this raises the chances that the economy contracted in Q4 and fell into recession.

‘Admittedly, the slowdown in credit growth could reflect timing around Christmas spending. The overall fall in consumer credit was driven by £0.5 billion of repayments on credit cards, the first net repayment since December 2021, after a large jump in November.

But we already know retail sales volumes were especially weak in December and the drop in borrowing suggests overall spending also dropped.

There is now probably a 50:50 chance that GDP in December fell by the 0.4% needed to drag Q4 as a whole into the negative.

The eurozone grew by 0.1% in the last quarter of 2022, according to preliminary data just released by Eurostat.

That’s a slowdown on the third quarter of last year, when the euro area expanded by 0.3%, but it beats forecasts of a 0.1% contraction.

Ireland (+3.5%) recorded the highest quarterly increase in GDP, followed by Latvia (+0.3%), and Spain and Portugal (both +0.2%), while we learned earlier that France grew by just 0.1%.

The highest declines were recorded in Lithuania (-1.7%) as well as in Austria (-0.7%) and Sweden (-0.6%). Germany’s economy shrank by 0.2%.

This means Europe lagged behind the United States at the end of last year. US GDP expanded at a 2.9% annualized pace in the fourth quarter, or by around 0.7% quarter-on-quarter.

The slump in mortgage approvals in December show that higher interest rates and the cost of living squeeze dampened economic activity at the end of last year, City economists say.

Ashley Webb, UK economist at Capital Economics, explains:

Mortgage approvals fell for the fourth consecutive month, falling from 46,200 in November to 35,600 in December, the lowest level since May 2020. That leaves approvals around 45% below their pre-pandemic levels and we expect elevated mortgage rates to keep approvals suppressed in the coming months. This weakness is likely to reflect the fact that the effective interest rate on newly drawn mortgages has continued to increase – by 32bps in December to 3.67%.

However, with 75% of all outstanding mortgages on fixed interest rates, many existing borrowers have yet to feel the full effects of higher interest rates. That’s one reason why we expect the drag on activity from higher interest rates to intensify in the next six months.

The housing market is now in the midst of “a significant slowdown”, says Karen Noye, mortgage expert at Quilter:

“Over the past few months, we have witnessed a sizeable fall in the level of demand in the market. While mortgage rates have dipped somewhat since the highs seen towards the end of last year, monthly costs remain far higher than many people had become accustomed to in recent years.

When coupled with rising energy bills – particularly now the winter has truly set in and people are becoming more reliant on their heating – we may be entering a time where more people begin to consider putting their properties up for sale in favour of a cheaper home. House prices have started to fall in recent months, and should the level of demand continue to decrease at the same time more people put their homes on the market, we will likely see this trend continue and a switch from the seller’s market to a buyer’s market could materialise.

Simon Gammon, managing partner at Knight Frank Finance, says activity picked up in January, though.

“The traditional property market Christmas slowdown came early in 2022 as prospective buyers opted not to act during the chaotic weeks after the mini-budget. Mortgage approvals for house purchase reveal just how poor sentiment was during the period.

“January has been much more active, which will show in next month’s data. It is clear now that many buyers’ merely postponed house moves rather than cancelled them altogether.

Just in: the number of UK mortgages approved for house purchases fell sharply last month, in the latest sign that the housing market is cooling.

Mortgage approvals decreased to around 35,600 in December from 46,200 in November, new figures from the Bank of England show, which is a rather larger fall than expected.

It’s the lowest monthly reading since May 2020, when demand was hit by the pandemic lockdowns, and is the fourth consecutive monthly decrease in mortgage approvals.

If you exclude the Covid-19 pandemic period, house purchase approvals are at the lowest level since January 2009, the Bank says.

The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 32 basis points, to 3.67% in December, the BoE reports.

Mortgage rate surged after the disastrous mini-budget in late September, and were slow to fall once the panic in the bond market eased.

That increase in mortgage rates was one factor pushing down house prices at the end of last year.

With the Bank of England expected to hike its benchmark interest rate to 4% on Thursday, from 3.5%, analysts are predicting house prices will keep falling.

Related: Why UK house prices could plunge by 20% after the latest interest rate hike

European markets have dropped this morning, despite the IMF upgrading its forecast for the world economy this year.

The pan-European Stoxx 600 has dropped by 0.6%, as has the UK’s FTSE 100 which is down 52 points at 7,732 points.

Investors are anxious about tomorrow’s meeting of the US Federal Reserve, concerned that the Fed may sound more hawkish about future interest rate rises.

Russ Mould, investment director at AJ Bell, explains:

This week’s US central bank decision on interest rates is incredibly important to the future direction of stock markets. Investors have been feeling quite relaxed of late, with a risk-on mentality when it comes to bidding up equities. Increasingly a lot of people have become confident that US rates are close to their peak in this part of the cycle, hence a strong run for many markets since late 2022.”

“But what if they’re wrong? A sense of nervousness has been creeping into the markets in recent sessions, evident by another bad showing on Wall Street last night. That’s extended to Asian and European stocks on Tuesday, causing a wobble among the main indices.

“With many stocks delivering large gains in the past few months, it’s understandable that some people want to take their money off the table. Locking in profits now means they are not gambling on what the Fed does next.

More European growth figures have been released this morning, highlighting the strain on economies as household spending falls.

Austria’s economy contracted by 0.7% in the fourth quarter of 2022, according to the Wifo research institute, as a drop in private consumption weighed on growth.

The Czech Republic also stumbled, with GDP shrinking by 0.3% in October-December.

The Czech Statistical Office says that final consumption expenditure of households had a negative influence on growth, wiping out the impact of external demand and expenditure on gross capital formation.

All the Tesco staff affected by the closure of its remaining counters and hot delis next month will be offered alternatives roles at stores.

Explaining the decision to shut these counters, Tesco says:

• We first announced changes to our counters back in 2019, and we’ve been reviewing them on an ongoing basis ever since.

• We have seen a significant decrease in demand for our counters over the last few years, and our customers no longer say they are a significant reason for them to come in store and shop with us. Instead, they are choosing to buy from our wide range of great quality products available in our aisles.

• The majority of our stores no longer operate any counters. In the small number of stores that do still have them, many are only open with reduced days and times – and we have strengthened our in-aisle ranges to ensure that customers can still find the meat, fish and deli products they want.

• We have therefore decided to close our remaining counters and hot delis from 26 February, and the space will be repurposed to better reflect our customers’ needs. All affected colleagues will be offered alternatives roles in store.

• Where we can work with a third party to offer a counter experience in-store, we will continue to do so.

Newsflash: supermarket chain Tesco says it plans to reduce the number of lead and team managers in its large UK stores, impacting around 1,750 workers.

In addition, a further 350 roles across Tesco’s UK business will be impacted by localised changes, such as the closure of eight pharmacies at Tesco stores and reduced hours at some in-store post offices.

Tesco says it also plans to close the remaining counters and hot delis in UK stores from February 26th.

Tesco UK and ROI chief executive officer, Jason Tarry, says the supermarket chain hopes to find new roles for those hit by the shake-up of its management structure, and other changes.

Tarry explains:

“These are difficult decisions to make, but they are necessary to ensure we remain focused on delivering value for our customers wherever we can, as well as ensuring our store offer reflects what our customers value the most.

“Our priority is to support those colleagues impacted and help find alternative roles within our business from the vacancies and newly created roles we have available.”

While Tesco is cutting the number of lead and team managers in large shops as part of a shake-up of its management structure, impacting around 1,750 workers, it is also introducing around 1,800 new shift leader roles in stores. Those workers will lead operational duties on the shop floor.

Speaking of inflation… the IMF is hopeful that price pressures will ease this year.

About 84% of countries are expected to have lower headline inflation in 2023 than in 2022, today’s World Economic Outlook predicts.

Global inflation is forecast to fall from 8.8% in 2022 to 6.6% in 2023, and fall again to 4.3% in 2024.

However, that would still leave average annual headline and core inflation above pre-pandemic levels in more than 80% of countries.

IMF chief economist Pierre-Olivier Gourinchas has warned that inflation could remain stubbornly high if tight labour markets push up wages, leading to higher interest rates. Plus, an escalation of the war in Ukraine could potentially destabilize energy or food markets and further fragment the global economy.

Gourinchas says central banks should be careful not to cut interest rates too early:

The inflation news is encouraging, but the battle is far from won. Monetary policy has started to bite, with a slowdown in new home construction in many countries.

Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries.

Where inflation pressures remain too elevated, central banks need to raise real policy rates above the neutral rate and keep them there until underlying inflation is on a decisive declining path. Easing too early risks undoing all the gains achieved so far.

Government minister Richard Holden has argued the International Monetary Fund (IMF) has been “wrong” before, and predicted that the UK will outperform its latest economic forecasts.

Holden, who is Parliamentary Under Secretary of State at the Department for Transport, told Times Radio:

“They’ve been wrong in the last two years, the OECD were also wrong over the last two years. I think Britain can beat those predictions.”

On Thursday, the Bank of England will release its own updated forecasts – and probably raise UK interest rates by another half a percent, to 4%. The BoE may upgrade its outlook, having warned in November that Britain could suffer its longest recession in century.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, also warns that the UK’s shrinking workforce is hitting growth:

“The IMF now expects the UK economy to shrink by 0.6% this year, which is a stark downgrade from previous expectations. This is a direct contrast to other major economies who have seen their outlooks upgraded because of resilient consumer demand. The UK is facing some specific problems, including its over-exposure to high energy retail prices, which are weighing on household budgets.

The UK also has a significant labour problem, which was initially caused by Brexit but has been made worse by a shrinking workforce since the pandemic. Mortgage rates are also prohibitively high in the UK which adds further pressure to the economy because it limits how much money people will spend on non-essentials. Ultimately, the UK has a productivity and demand problem, which when put together creates a very difficult environment.

There’s a chance the UK could muster a better performance than the IMF is predicting, given upgrades to expectations from other bodies in recent months. The market will remain very sensitive to interest rate and inflation readings until we have a clear path out of the stagnation.

More bad news: British grocery inflation has hit a record 16.7% in the four weeks to January 22, as households continued to be hammered by soaring food and drink prices.

Market researcher Kantar says this means families faced a potential £788 annual rise in the cost of their regular shopping basket as a result of rising prices, unless they change their shopping habits.

At 16.7%, grocery inflation was the highest since Kantar started tracking the figure in 2008. Prices are rising fastest in markets such as milk, eggs and dog food, it says.

This is a sharp jump on December’s grocery inflation reading of 14.4%, which lifted Christmas spending to a record £12.8bn.

Fraser McKevitt, Kantar’s head of retail and consumer insight, says January’s increase in prices was ‘staggering’:

“Late last year, we saw the rate of grocery price inflation dip slightly, but that small sign of relief for consumers has been short-lived.

Grocery price inflation jumped a staggering 2.3 percentage points this month to 16.7%, flying past the previous high we recorded in October 2022.”

Despite downgrading its UK growth forecast this year, the IMF has said it thinks the UK economy is now “on the right track” following the autumn statement, points out Victoria Scholar, head of investment at interactive investor:

“The International Monetary Fund (IMF) has predicted that the UK will be the only major economy out of the 15 in the report including sanction-rocked Russia to shrink in 2023. The fund expects the UK economy to contract by 0.6% this year, downgraded from growth of 0.3% in its previous forecasts. The British economy is expected to contract on the back of high energy prices, tax increases and rising interest rates.

However the IMF said the Treasury appears to be on the right track after the Autumn Statement and the fund upgraded the UK’s growth outlook for next year from 0.6% to 0.9%. Interestingly, the IMF did not mention Brexit as a reason because of the UK’s underperformance.

The UK’s latest GDP figures saw the UK economy grow in November by 0.1% versus expectations for a contraction, Scholar points out:

It hangs in the balance whether the UK will narrowly stave off a recession or not. At the start of the year, Prime Minister Rishi Sunak pledged to halve inflation and grow the economy. While inflation is already showing signs of easing, the IMF’s forecast indicates the latter pledge may be more difficult to achieve.

The IMF showed its support for the government’s fiscal prudence in the Autumn Statement in stark contrast to the fiscal fiasco around the mini-budget in September. This suggests that the Treasury is unlikely to pull any rabbits out of the hat at the Spring Budget on 15th March with Chancellor Jeremy Hunt expected to stick to tax increases rather than cuts as taming inflation remains an ongoing priority.”

Digging into the IMF’s latest forecasts, they show that about 90% of advanced economies are projected to see a decline in growth in 2023.

But the US, the eurozone and Japan are all expected to grow this year, unlike the UK.

Here’s the details:

• In the United States, growth is projected to fall from 2.0 percent in 2022 to 1.4 percent in 2023 and 1.0 percent in 2024. With growth rebounding in the second half of 2024, growth in 2024 will be faster than in 2023 on a fourth-quarter-over-fourth-quarter basis, as in most advanced economies. There is a 0.4 percentage point upward revision for annual growth in 2023, reflecting carryover effects from domestic demand resilience in 2022, but a 0.2 percentage point downward revision of growth in 2024 due to the steeper path of Federal Reserve rate hikes, to a peak of about 5.1 percent in 2023.

• Growth in the euro area is projected to bottom out at 0.7 percent in 2023 before rising to 1.6 percent in 2024. The 0.2 percentage point upward revision to the forecast for 2023 reflects the effects of faster rate hikes by the European Central Bank and eroding real incomes, offset by the carryover from the 2022 outturn, lower wholesale energy prices, and additional announcements of fiscal purchasing power support in the form of energy price controls and cash transfers.

• Growth in the United Kingdom is projected to be –0.6 percent in 2023, a 0.9 percentage point downward revision from October, reflecting tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets.

• Growth in Japan is projected to rise to 1.8 percent in 2023, with continued monetary and fiscal policy support. High corporate profits from a depreciated yen and earlier delays in implementing previous projects will support business investment. In 2024, growth is expected to decline to 0.9 percent as the effects of past stimulus dissipate.

Labout shortages, high mortgage costs, and Brexit challenges are all weighing on the UK economy, says Paul Johnson, director of the Institute for Fiscal Studies.

Speaking on Radio 4’s Today Programme, Johnson points out that the UK’s performance doesn’t look quite so bad if you look at 2022 and 2023 together. The IMF estimates the UK economy grew by 4.1% last year, faster than the US’s 2% or the eurozone’s 3.5%.

But there are several factors affecting the UK more than other countries, Johnson says.

One, in particular, is the loss of people from the labour force, where the UK has lost more than half a million workers. That’s due to people retiring early, and “immigrants not coming in from the European Union, and so on”, Johnson says, adding:

That’s not affecting any other country in Europe…. That’s a particular challenge for us.

Secondly, higher interest rates are feeding through very quickly to mortgages in the UK.

And thirdly, the UK has “the continuing challenges from Brexit” – today, incidentally, is the third anniversary of the UK’s departure from the European Union.

Related: Three years on from Brexit, all UK voters are left with is a bitter taste of Bregret | Polly Toynbee

Paul Johnson also warns that there is only a “limited amount” that government’s can do in the short run to improve the economic outlook. He thinks chancellor Hunt is correct to focus on bringing inflation down.

Q: Is any of this a result of Liz Truss’s brief premiership?

Johnson replies that most of the immediate effects have gone – the UK’s borrowing costs are similar to other countries again (after surging after the mini-budget), while the exchange rate has recovered (the pound is worth $1.235 today, having hit a record low of $1.03 in the autumn).

Related: Pound hits all-time low against dollar after mini-budget rocks markets

But, there are long-term consequences of political instability, he adds, particularly in terms of how happy international companies are to invest here, and what risk premium they might take on the UK.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Growth, or the lack of it, is the main issue today after the International Monetary Fund released its latest economic forecasts overnight … and as we await eurozone GDP figures this morning.

The IMF’s message for Britain was grim – the UK is the only advanced economy expected to fall into recession this year.

UK GDP is forecast to shrink by 0.6% this year, the worst forecast for any G7 country this year, which is a 0.9 percentage point downward revision from October’s forecasts.

The IMF blamed the downgrade on tighter government spending policies and higher interest rates (which may be raised again on Thursday), and the burden from still-high energy retail prices on household budgets.

Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said 2023 would be “quite challenging” for the UK as it slipped from top to bottom of the G7 league table.

He added:

“There is a sharp correction.”

Related: Britain the only G7 economy forecast to shrink in 2023

The move piles more pressure on UK chancellor Jeremy Hunt, who’s facing calls from business groups for a more ambitious growth strategy, and demands from some Conservative MPs for tax cuts.

This contraction would follow 4.1% growth in 2022, the IMF says, one of the fastest growth rates among advanced economies last year.

The broader economic picture has brightened a little, though, the IMF says, citing “signs of resilience and China reopening”.

The IMF has lifted its forecast for the world economy this year: global growth will slow from 3.4% in 2022 to 2.9% in 2023 – an upgrade on its previous forecast of 2.7%.

The IMF’s Gourinchas says China’s sudden reopening paves the way for a rapid rebound in activity.

Gourinchas writes:

The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.

Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.

Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries – even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.

© Provided by The Guardian
IMF growth forecasts Photograph: IMF

Also coming up….

We find out today how the French, Portuguese, Italian and the wider eurozone economy fared in the final quarter of last year.

Yesterday we learned that Germany’s GDP shrank unexpectedly in Q4, by 0.2%, putting Europe’s largest economy at risk of a winter recession.

The agenda

• 6.30am GMT: French Q4 2022 GDP report

• 8.55am GMT: German unemployment report for January

• 9.30am GMT: Portugal’s Q4 2022 GDP report

• 9.30am GMT: UK mortgage approvals and consumer credit data for December

• 10am GMT: Italy’s Q4 2022 GDP report

• 10am GMT: Eurozone Q4 2022 GDP report

• 1.30pm GMT: Canadian December and Q4 2022 GDP report

• 2pm GMT: US house price index

There’s plenty of media reaction to the IMF’s prediction that Britain’s economy will shrink this year as the cost-of-living crisis hits households hard, leaving the UK with the worst performance of all the advanced nations.

The Financial Times points out that even Russia – hit by sanctions following the Ukraine war – is expected to grow this year. They say:

The fund upgraded its forecasts for most leading economies and said the global outlook had brightened.

But it identified the UK as an exception and said the British economy would shrink by 0.5 per cent between the final quarter of 2022 and the final quarter of this year. Even Russia’s economy is now likely to outpace the UK’s, growing 1 per cent this year, according to the IMF forecasts.

Bloomberg points out that higher interest rates and tighter fiscal policy (government tax and spending policy) are blamed for slump:

Britain faces the bleakest two years of any major industrial nation with a recession in 2023 and the slowest growth of peers in 2024, the International Monetary Fund predicts.

The UK will be the only Group of Seven member whose economy will shrink this year, with a contraction of 0.6%, the IMF said. The Washington-based institution downgraded its outlook by a massive 0.9 percentage point from October, saying higher interest rates and taxes along with government spending restraint will exacerbate a cost-of-living crisis.

The Daily Mail says Britain has been hit with a “devastating forecast”, which adds to the pressure on Jeremy Hunt to produce a convincing plan for recovery.

While the Daily Telegraph points out that business leaders including Marks & Spencer chairman Archie Norman and Sir James Dyson have already been critical of the Government’s economic approach, adding:

The Prime Minister and the Chancellor are however resisting calls to cut taxes in the upcoming budget, with Mr Hunt insisting on Friday that inflation needed to come down first.

And in the Guardian, my colleague Larry Elliott writes:

The UK chancellor, Jeremy Hunt, last week warned a sense of declinism was hampering the UK’s economic recovery, and has come under pressure to come up with a credible plan to boost growth.

His speech, which focused on “enterprise, education, employment and everywhere”, was widely criticised by business leaders as being devoid of policies.

Related: Britain the only G7 economy forecast to shrink in 2023

You can read the International Monetary Fund’s latest World Economic Outlook here.

Just in: France’s economy slowed at the end of last year, but did better than economists predicted.

The French economy eked out growth of 0.1% in the fourth quarter of 2022, according to preliminary gross domestic product (GDP) figures just released.

That’s a slowdown compared to economic growth of 0.2% in the third quarter, but does beat forecasts – economists expected France to stagnate in Q4.

It also beats Germany, which shrank by 0.2% in Q4. We don’t yet know how the UK economy fared in the October-December quarter.

Rachel Reeves MP, Labour’s Shadow Chancellor, says the IMF’s forecasts show Britain needs a proper plan for growth:

“Britain has huge potential – but too many signs are pointing towards really difficult times for our economy, leaving us lagging behind our peers.

“The government should be doing all it can to make our economy stronger and to get it growing.

“It is the only way that we can move beyond lurching from crisis to crisis as we have been for far too long.

“Labour has a proper plan for growth that will get our economy back on track. Our Green Prosperity Plan and our active partnership with business will get our economy growing so we can get out of this spiral and onto a better path.”

Chancellor Jeremy Hunt has responded to the IMF report, saying nearly all advanced economies were facing headwinds.

Hunt declared:

“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 IMF’s message, though, is that the UK is an exception to the brightening global prospects this year]