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IMF urges ‘targeted support’ for UK households hit by cost of living surge

The International Monetary Fund (IMF) has taken an axe to its global growth forecasts while listing a string of threats to the economic recovery from the coronavirus pandemic.

The world’s lender of last resort downgraded a prediction, made in October, for 4.9% growth in collective gross domestic product this year, saying it now expected a figure of 4.4%.

That was down from the 5.9% estimated during 2021 as economies fought back from the worst of the massive downturn during 2020.

It said the reduction in its updated 2022 forecast was largely led by the world’s two largest economies – the United States and China.

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Omicron takes hold in United States

But the IMF’s World Economic Outlook also cut its expectations for most advanced and emerging economies, including the UK.

The IMF cited disruption brought by restrictions to stop the Omicron COVID variant and inflation – caused by surging energy prices and supply chain woes that have seen shipping volumes overwhelmed and worker shortages.

“In the United Kingdom, disruptions related to Omicron and supply constraints (particularly in labour and energy markets) mean that (2022) growth is revised down by 0.3 percentage point to 4.7%”, the report said.

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Of the advanced economies, only Spain is expected to outperform the UK this year in terms of growth.

The IMF said: “The global economy is entering 2022 in a weaker position than anticipated.

“News of the Omicron variant led to increased mobility restrictions and financial market volatility at the end of 2021.

“Supply disruptions have continued to weigh on activity. Meanwhile, inflation has been higher and more broad-based than anticipated.”

The IMF forecast said shutdowns of Chinese cities to control Omicron and financial stress in its property market meant it was shaving 0.8% off its earlier projections for the world’s second-largest economy.

A medical worker collects a swab sample from a resident at a makeshift nucleic acid testing site at a residential compound, following new confirmed cases of the coronavirus disease (COVID-19), in Beijing, China January 24, 2022. REUTERS/Tingshu Wang
Image:
Residents of Beijing are given COVID tests as the authorities look to limit the spread of the Omicron variant

It now expected growth of just 4.9% for 2022 as a result.

The new forecast saw a projection of 4% for the United States – a decline of 1.2% on October’s forecast.

Inflation has since hit a 40-year high of 7% in the US and is tipped by financial markets to force the US Federal Reserve into four interest rate rises this year.

The IMF warned of a knock-on effect in the event of US rate increases.

The report said: “Less accommodative monetary policy in the United States is expected to prompt tighter global financial conditions, putting pressure on emerging market and developing economy currencies.

“Higher interest rates will also make borrowing more expensive worldwide, straining public finances.”

Its said risks to its latest forecasts were tilted to the downside amid uncertainty over Omicron and the potential for new variants.

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Is World War Three imminent?

The report also cited risks from climate change, a resurgence in protests against virus restrictions and rising prices.

Growing geopolitical tensions, including in eastern Europe where western powers fear a Russian invasion of Ukraine, were listed too.

Experts have warned that a NATO-led or economic backlash against any such move by Moscow could result in Russia withdrawing gas supplies from Europe, exacerbating the inflation problem as its gas accounts for more than 40% of the EU’s usage.

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