UK faces economic challenges despite expectations it will avoid recession: IMF

By Aysu Bicer

LONDON (AA) - The UK is facing economic challenges despite expectations it will avoid a recession this year, said an IMF report released on Tuesday.

The global body said the recent energy price shock caused by Russia's war in Ukraine disrupted the country's recovery, resulting in projected growth rates of only 0.4% in 2023 and 1% in 2024.

It also underlined that historically tight labor markets and terms of trade shock have contributed to record-high inflation.

"Bringing down inflation is a prerequisite for lasting stability and growth. The authorities have rightly tightened monetary policy... But, the country also faces structural challenges, notably weak potential growth, currently estimated at about 1.5%," it noted.

- Ambitious reforms needed

According to the IMF, ambitious reforms are needed to bolster the UK’s productive potential.

"Prior to the 2008 global financial crisis, the UK had been a strong performer among the Group of Seven countries. But this momentum was lost in the middle of the last decade," it said.

In addition, labor supply, while recently reaching its pre-pandemic level, has been comparatively weaker than that of peer countries.

Like other advanced economies, the UK has experienced sluggish productivity growth, primarily due to a slower rate of innovation and technological diffusion, the IMF said.