'Not a laggard': IMF's chief economist says UK has similar problems to other European countries

The UK has been forecast to record the weakest economic growth across the G7 group next year, as Economics and Business Editor Joel Hills reports

The International Monetary Fund estimates the UK will be the slowest growing economy in the G7 club of advanced nations next year.

But the fund’s chief economist says the UK is not lagging behind other member countries. 

In an interview with ITV News, Pierre-Oliver Gourinchas explained that interest rates in UK will probably need to remain higher for longer than in the United States or the Eurozone in order to contain price rises.

He insisted the UK faces “a similar inflation problem to continental European economies”.

Mr Gourinchas explains why the inflation rate in the UK is proving persistent

The UK currently has the highest rate of inflation in the G7.

Mr Gourinchas says the headline rate has been slower to fall due to the strength of wage growth.

He adds that there is no evidence of a wage/price spiral in the UK - one of the Bank of England’s concerns - and he thinks the upward pressure on prices will continue to fade.

“Inflation has crested and is coming down,” Mr Gourinchas told ITV News.

He added: “The question is: is it coming down decisively? Is it coming down really fast or is it going to be more persistent? Are we going to get some bad news?

"Central banks will want to be a little bit cautious, they don't want to start easing too early. Easing prematurely would be a great mistake.”

The IMF assumes that interest rates in the UK, currently 5.25%, will peak at around 5.5% at the end of this year before they start to fall again in 2024. 

The outlook for economic growth remains weak but, all being well, Mr Gourinchas expects households in the UK to start to feel better off again “probably in the current coming year”.

Last month, the Office for National Statistics (ONS) published revisions which showed the UK economy had performed much better in 2020 and 2021 than had been thought.

Until recently, the official data suggested the UK’s recovery from the economic shocks, triggered by the pandemic and the war in Ukraine, had been more anaemic than in other countries in the G7 (US, Japan, Germany, France, Italy and Canada).

Overview of the World Economic Outlook Projections. Credit: IMF

Mr Gourinchas believes it would now be wrong to characterise the UK as an outlier.

“It’s in the middle of the pack among the the European economies, it’s certainly not one of the ones at the bottom,” he said.

Mr Gourinchas describes the ONS revisions as “quite significant” and says they suggest COVID caused less lasting damage or “scarring” to the UK economy than the IMF had thought. 

"The UK is in the middle of the pack, not at the bottom," says Mr Gourinchas

The ONS revisions came too late for the IMF to include them in their latest forecasts but Mr Gourinchas insists they would not have made a difference to the projections for 2023 and 2024.

“[The revisions are] good news,” Mr Gourinchas says “but it also gives [the UK] less momentum going forward because you don’t have so much lost ground to make up.”

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