Today, the economic Cassandras at the IMF are predicting that the UK will be the only major country to see its GDP shrink this year. That includes Russia, dabbling with sanctions and war, and Germany, which already finds itself in a recession.
Despite improving global conditions – as inflation recedes, energy prices fall, and growth returns – the IMF believes the UK’s economy will contract by 0.6 per cent in 2023. This would make Britain the slowest-growing economy in the G7.
Why does it think this? For all those hoping that, on the anniversary of our leaving the European Union, this provides a splendid opportunity to revive the debates of the last decade will be deeply disappointed. The IMF sees the roots as being far more recent – specifically “tighter fiscal and monetary policies” introduced in recent months.
Jeremy Hunt and Andrew Bailey make unconvincing villains, but it is clearly them to whom the gnomes of Washington D.C are referring. For the former, Hunt is held responsible for the tightening of departmental spending thresholds in his Autumn Statement, alongside the freezing of various tax thresholds. Bailey, meanwhile, has now shaken off Threadneedle Street’s previous enthusiasm for loose monetary policy, with rates expected to rise for the tenth consecutive time on Thursday.
The Chancellor and Governor can defend their choices. Hunt has pointed towards Bailey’s recent claim that any UK recession is “likely to be shallower than previously predicted” as a sign that the current course is working. Bailey took far too long to raise interest rates, but he was far from the only person lured by groupthink into believing the inflationary tiger wasn’t on its way.
Nonetheless, the claim that Hunt’s hikes will push the country into a recession will be grist to the mill of the tax-cutting lobby on the Tory backbenches. The suggestion that Britain is underperforming its competitors – on Brexit day, of all days – will boost the claim that an immediate slash to rates is needed to get growth going.
Yet the problem for the tax-cutters is that this wisdom was tested during our recent experimentation with Trussonomics – and the IMF found it wanting. “Given elevated inflation pressures in many countries, including the UK,” the organisation said, “we do not recommend large and untargeted fiscal packages at this juncture”.
Inflation may be turning a corner. But that does not stop it from seeming a tad unreasonable of the IMF for damning both tax cuts and tax rises. That it has done so raises a basic question: why does it have such a downer on the United Kingdom?
Since 2016, the IMF has consistently under-predicted UK growth. During the Brexit referendum, it predicted both a two-year recession and plummeting house prices. It looked rather silly when Britain enjoyed neither. Even now, it is unclear if it has fully factored in what the rapid fall in gas prices will mean for the eventual cost of the Energy Price Guarantee.
You may call it “Treasury orthodoxy”, whilst muttering darkly about the World Economic Forum. But it seems the easiest explanation for the IMF’s pessimism is that Britain keeps doing things it doesn’t like, and it keeps misjudging our prospects accordingly.
If you keep reading in The New York Times that post-Brexit Britain is a basket case, and if that is what all the other sensible chaps and chapettes keep telling you during dinner parties and skiing holidays, you will naturally assume that we must be. Cue that Michael Gove gap, and bask in the smugness provided by proving these so-called experts consistently wrong.
That does not mean those demanding immediate tax-cuts are right. Trussonomics floundered under the unwillingness of many Tory MPs – at all levels of government – to accept that cutting taxes also required reducing spending, and passing genuine supply-side reforms. Recent complaints about levelling-up funding and the Housing Bill debacle suggest that those lessons have not been learnt.