Take IMF forecasts ‘with a fistful of salt’, says IEA economist
31 January 2023
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Commenting on the International Monetary Fund’s forecast that the UK economy will shrink by 0.6 per cent in 2023, Julian Jessop, Economics Fellow at the Institute of Economic Affairs, said:
“The IMF’s relatively gloomy forecasts for the UK economy in 2023 should be taken with a fistful of salt. The organisation’s track record here is poor and some of the assumptions – especially about energy prices and interest rates – already look out of date.
“The differences between the numbers for the UK and our peers in the rest of Europe – notably Germany, France and Italy – are also well within the usual margins of error.
“Nonetheless, the UK economy has been underperforming its potential for many years. Taken at face value, the IMF forecasts underline the case for a pro-growth strategy which tackles the major problems which have been holding us back.
“These headwinds include the decline in labour force participation, the weakness in business investment, and sky-high energy bills. A comprehensive programme of supply-side reforms is required to boost productivity and real wages.
“The IMF provides little detail in these interim updates. But it does note that the downward revision to its UK forecasts since October reflects tighter fiscal and monetary policies.
“In contrast, the forecasts for the euro area have been nudged up slightly, reflecting the announcements of additional fiscal support in the form of energy price controls and cash transfers.
“This adds to doubts about the wisdom of raising UK taxes even further, including the planned hike in corporation tax from 19 per cent to 25 per cent, ending the ‘super deduction’ on capital spending, and extending so-called ‘windfall taxes,’ all of which are damaging business investment.
“There is a clear risk too that support with sky-high energy bills is withdrawn too quickly. But this form of intervention can only ever be a short-term fix. The UK energy market also needs fundamental reform after years of government meddling.”
ENDS
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Notes to Editors
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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