UK economic growth will be dragged back by the impact of Russia’s invasion of Ukraine and soaring inflation over the next two years, according to the International Monetary Fund.
In its latest World Economic Outlook update, the fund downgraded its UK growth forecast for the year to 3.7 per cent, from the 4.7 per cent it predicted in January.
The IMF had previously downgraded its growth projection, having said in October it expected a 5 per cent rise.
It came as the IMF also cut its global growth outlook for 2022 to 3.6 per cent from 4.4 per cent.
“Global economic prospects have been severely set back, largely because of Russia's invasion of Ukraine,” the fund said.
“This crisis unfolds even as the global economy has not yet fully recovered from the pandemic.
“Even before the war, inflation in many countries had been rising due to supply-demand imbalances and policy support during the pandemic, prompting a tightening of monetary policy.”
The IMF said the war will “slow economic growth and increase inflation”, creating a more challenging environment as economies recover from the health crisis.
It said it expects that inflation will weaken spending in the UK and Europe.
“In the United Kingdom, consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment”, it said.
The downgrade comes after the UK recorded 7.4 per cent growth last year as pandemic restrictions were eased.
The prediction for UK economic growth next year was also sharply downgraded, with the IMF reducing its 2023 forecast to 1.2 per cent from 2.3 per cent in January.
The IMF highlighted that price rises caused by the invasion, including for oil, gas, metals, wheat and corn, have resulted in surging food and fuel prices that will have a greater impact on lower-income households.
As a result, the fund said it now projects that inflation will “remain elevated for much longer” than previously expected.
The IMF said: “The risk is rising that inflation expectations drift away from central bank inflation targets, prompting a more aggressive tightening response from policymakers.”
In the UK, consumer price inflation hit 7 per cent in March. It is expected to remain significantly above the Bank of England’s target rate of 2 per cent.