THE UK economy is set to shrink and perform worse than other major industrialised economies, including Russia, as the cost of living continues to hit households, the International Monetary Fund (IMF) has said.

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

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

The UK is expected to be the only country to shrink next year among those in the G7 with even sanctions-hit Russia expected to grow.

Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said 2023 would be “quite challenging” for the UK as it slipped from top to bottom of the G7 league table.

The news came in the IMF’s update to its half-yearly World Economic Outlook (WEO) – a health check on the global economy published in April and October.

The October 2022 WEO was completed before the tax-cutting mini-budget from then-chancellor Kwasi Kwarteng in late September.

Following this, the IMF said the UK had performed more strongly in 2022 than anticipated, growing by 4.1%.

However, it said the outlook for 2023 had deteriorated, with the forecast reflecting the higher taxes put in place by Hunt and higher interest rates from the Bank of England.

“With inflation at about 10% or above in several euro-area countries and the United Kingdom, household budgets remain stretched. The accelerated pace of rate increases by the Bank of England and the European Central Bank is tightening financial conditions and cooling demand in the housing sector and beyond”, the IMF said.

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According to The Guardian, Treasury sources said the IMF’s focus on inflation reinforced the need to tackle the cost of living crisis.

Reacting to the news, the SNP’s economy spokesperson Stewart Hosie said that Britain was “sinking” due to a “perfect storm of Tory economic incompetence”. 

“A disastrous Brexit is causing the UK economy to go into freefall, Scotland needs the lifeboat of independence to escape the constant decline of the UK”, Hosie added. 

He continued: “Every developed country is set to grow this year, but the difference being that none of those countries have inflicted the economic self-harm of Brexit on themselves and Scotland has had to suffer the consequences despite overwhelmingly rejecting leaving the EU. 

“Even Russia, which is being rightly heavily-sanctioned for its invasion of Ukraine, is predicted to grow its economy this year. 

“That is just how far broken Brexit Britain has fallen, and it is only going to get worse because of the economic incompetence of this UK Government. 

“There would be no respite for Scotland under a pro-Brexit Labour government either as it would still keep Scotland outside the European Union, a market seven times the size of the UK. 

“That is why the only way for Scotland to escape the economic turmoil of Westminster control is by becoming an independent country.”

In response to the figures, Hunt said: “The governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted, however these figures confirm we are not immune to the pressures hitting nearly all advanced economies.

“Short-term challenges should not obscure our long-term prospects – the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”