Whenever government officials and the UK talk about the current cost-of-living crisis, they seem to discuss a broader, more global issue that also affects a raft of other countries.
However, inflation is slightly higher in the UK than in many of the other EU nations. In fact, the UK’s Consumer Price Index (CPI) increased to 9.1% in May, while the corresponding rate of inflation across the EU was slightly lower at 8.8%.
Unsurprisingly, the International Monetary Fund (IMF) has predicted that the UK will record the slowest growth in the G7 next year. But exactly how bad will things get, and what does the future hold for the economy in the UK?
How Future Growth Will Compare with the Rest of the World
According to the IMF, the British economy is expected to grow by a paltry 0.5% through 2023 (in GDP terms). This follows a recent contraction of 0.3% in April 2022, with further stagnation forecast for the remainder of this year.
This projection has been revised too late, with the IMF initially suggesting that the UK economy would grow by 1.2% through 2023.
While all G7 nations have had their 2023 growth forecasts revised downwards of late (and Germany have seen the largest decrease in percentage terms), the UK remains the slowest-growing economy and one with the bleakest near and medium-term outlook.
Conversely, Canada and Japan are projected to experience GDP growth of 1.8% and 1.7% respectively, with France and the US expected to expand by 1%.
Why is the UK Economy Struggling More Than Others?
The question that remains, of course, is why should the UK be struggling so much more than other economies and those in the EU?
Well, the obvious elephant in the room is Brexit, which economists have always warned would create a more difficult trade-off between managing inflation and driving growth. This forecast was largely the result of newly erected trade barriers and continued labor shortages, with a lower number of workers traveling directly from the EU.
As a result, inflation is likely to be slightly higher and more stubborn than elsewhere (with the figures appearing to bear this out), while the BoE may have to raise interest rates higher to achieve its target of 2%.
Of course, post-pandemic supply chain issues are also proving problematic, although such challenges should be universally applicable across the UK and Europe.
What Does the Future Hold for the UK?
The challenge facing households and businesses is unlikely to abate anytime soon, while investors are using speculative vehicles such as spread betting to leverage volatility to their advantage.
According to most forecasts, it may take more than a year to reduce and stabilize inflation in the UK, with this not expected to return to the desired level of around 2% until the end of 2024.
As for the extent of the economic decline during this period, much will depend on whether or not the UK enters a technical recession.
The economy is on the cusp of this having recorded a 0.3% contraction in April, and this would undoubtedly worsen the mood and create longer-term issues going forward.