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The UK economy will shrink and perform worse than other advanced economies, including Russia, as the cost of living continues to hit households, the International Monetary Fund has said.

The IMF said the economy will contract by 0.6% in 2023, rather than grow slightly as previously predicted.

However, the IMF also said that after the Autumn Statement plans it thinks the UK is now "on the right track".

Chancellor Jeremy Hunt said the UK outperformed many forecasts last year.

But shadow chancellor Rachel Reeves said the figures showed the UK "lagging behind our peers".

The IMF, which works to stabilise economic growth, said its new forecast reflected the UK's high energy prices and factors such as high inflation.

The UK is expected be the only country to shrink next year across all the advanced and emerging economies. Even sanctions-hit Russia is now forecast to grow this year.

If a country's economy shrinks, typically this means companies make less money and the number of people unemployed rises.

IMF chief economist Pierre-Olivier Gourinchas told the BBC that last year, the UK had "one of the strongest growth numbers in Europe".

He said this year's forecast reflected the UK's "high dependence on liquid natural gas" and that employment was still below pre-pandemic levels.

Mr Gourinchas said the plans outlined by the Treasury in the months since the Autumn Statement showed the UK was "certainly trying to carefully navigate these different challenges and we think that they are on the right track".

The IMF expects the UK to grow in 2024, revising up its forecast to 0.9% from 0.6%.

Paul Johnson, director of the Institute for Fiscal Studies, said that the IMF had got its forecasts wrong in the past, and he noted the fund was "actually being more optimistic than it was a few months ago".

Forecasts from the Bank of England due later this week are likely to be more positive than they were two or three months ago, he added.

"My best guess is that the economy will be broadly stagnant this year. That we're not going to get much in the way of growth but we're not going to have a deep recession either," he told the BBC's Today programme.

"Now that's not great, particularly as we should be bouncing back more strongly from Covid and particularly as we've not been growing terribly well for the last decade and more.

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31/01/2023
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