The UK’s economic recovery this year will be weaker than previously forecast and take longer than other countries to return to pre-pandemic levels, according to a new IMF report.
The International Monetary Fund’s updated World Economic Outlook forecasts that after slumping by 10% in 2020, Britain’s GDP will grow by 4.5% this year – down from a previously predicted 5.9%.
Overall global growth for 2021 is pencilled in at 5.5%, an upgrade of 0.3 percentage points – reflecting the rollout of COVID-19 vaccines and economic stimulus policies.
In the US, where President Joe Biden is planning a new $1.9trn package for the economy, the growth outlook for this year has been upgraded by two percentage points to 5.1%.
Both the US and Japan – which is still determined to hold the Olympics this summer – are expected to return to levels last seen at the end of 2019 by the second half of this year, the IMF said.
But the report said that in the euro area and the UK, “activity is expected to remain below end-2019 levels into 2022”.
“The wide divergence reflects to an important extent differences across countries in behavioural and public health responses to infections, flexibility and adaptability of economic activity to low mobility, pre-existing trends, and structural rigidities entering the crisis,” the IMF said.
On the plus side for the UK, the outlook for 2022 has been upgraded by 1.8 percentage points to 5% – ahead of all other advanced economies.
The IMF said its projections were subject to “exceptional uncertainty”.
New restrictions following recent increases in COVID-19 cases could mean growth is weaker than predicted in the early part of the year, it said.
However, the UK’s Brexit agreement with the EU had eliminated the key “downside risk” of a no-deal.
The report comes after latest monthly survey data pointed to Britain’s economy shrinking in January at the fastest pace since May, as the latest lockdowns take their toll.
That added to fears that the UK economy will have suffered a so-called “double-dip” recession as a result of the pandemic.