The UK will retain its place because the worst-performing main economic system on the earth this yr, based on forecasts from the Worldwide Financial Fund, which has warned that world inflation will keep greater for longer.

Regardless of a brightening outlook this yr, the UK will document a 0.3 per cent progress contraction in 2023, the fund mentioned. That could be a 0.3 proportion level improve to its projections made at the beginning of the yr however means Britain is just the second economic system to contract together with Germany this yr.

The fund’s forecasts are in keeping with projections from the Financial institution of England and Workplace for Funds Accountability, the official forecaster, which have revised up their outlook for the yr, however anticipate progress to stay weak by historic requirements as inflation and the price of residing chew.

UK progress is anticipated to speed up 1 per cent subsequent yr, a 0.1 proportion level improve from January, and just like charges in Japan and america, the fund mentioned. Development accelerated 4 per cent in 2022, the second highest amongst rich-world economies after Spain, however the UK is likely one of the few main economies to stay beneath its pre-pandemic dimension.

The IMF downgraded its outlook for world progress by 0.1 proportion level to 2.8 per cent this yr and three per cent subsequent yr, because it anticipated inflation to stay persistently excessive in main economies. It has mentioned progress over the subsequent 5 years would be the weakest because the early Nineteen Nineties.

Pierre-Olivier Gourinchas, IMF chief economist, mentioned “the fog world wide financial outlook has thickened”. He added: “Inflation is way stickier than anticipated even just a few months in the past. Whereas world inflation has declined, that displays principally the sharp reversal in power and meals costs. However core inflation, which excludes power and meals, has not but peaked in lots of nations.”

Germany will document the second-lowest progress charge amongst main economies this yr, declining 0.1 per cent, whereas the 20-country eurozone will develop 0.8 per cent on common. The US is anticipated to develop 1.6 per cent and Japan 1.3 per cent.

Core inflation has risen to an all-time excessive within the eurozone and is 5.5 per cent within the US, greater than twice the Federal Reserve’s goal charge. It means that underlying inflationary pressures in wealthy economies stay robust regardless of falling headline inflation charges.

The IMF thinks world core inflation will fall to five.1 per cent by the tip of the yr, 0.6 proportion factors greater than its January projection.

Gourinchas mentioned the power of inflationary pressures, brought on partly by rising wages and still-low unemployment charges, might power central banks to increase their aggressive financial tightening within the coming months. “This may increasingly name for financial coverage to tighten additional or to remain tighter for longer than presently anticipated,” he mentioned.

The IMF highlighted the UK’s double-digit inflation as piling strain on family budgets. It additionally pointed to September’s panicked promoting of UK bonds after the mini-budget as a warning concerning the fragility of monetary stability after three US banks collapsed final month.

Gourinchas mentioned buyers and monetary markets had develop into “complacent” concerning the dangers posed by quickly rising rates of interest which makes cash dearer and hits the worth of property resembling authorities debt held by buyers. Additional banking turmoil is likely one of the “vital dangers” stalking the worldwide economic system and it might scale back the availability of credit score to households and companies, the IMF mentioned.

“The side-effects that the sharp financial coverage tightening of the final yr is beginning to have on the monetary sector, as we’ve repeatedly warned, may occur. Maybe the shock is that it took so lengthy,” Gourinchas mentioned.