As we all know, the current pandemic has hugely affected the UK’s economy over the past two years, and it's no surprise that the government has been trying to build the economy back up.
However, this is proving more difficult than one may think, due to the new Delta variant of coronavirus. The International Monetary Fund (IMF) says that “economic recovery has weakened in most rich nations,” such as the UK and US, due to the Delta variant.
The IMF therefore warns banks to be “very, very vigilant” and to tighten their monetary policies (rules that banks follow to control overall money supply) if this economic pressure persists.
Gita Gopinath, the IMF chief economist, said that one of the biggest problems is high inflation, which simply means a general increase in the price of things. This is most notable in the UK and US where it is running at 3.2% and 5.3% respectively.
These high inflation levels are recent developments. The UK’s inflation rate had been fluctuating between a few low values, all less than 1%, during the months between September 2020 and March 2021. However, it was in April 2021 when the inflation rate rapidly increased, from 0.7% in the previous month to 1.5%, doubling. Since then, it has continued to increase over the recent months at a fairly steady pace (except for a small drop during the month of July) until now where it stands at the aforementioned value of 3.2%.
This huge increase of over 300% was largely due to the recent rapid increase in gas prices, as well as a “mismatch between demand and supply” for many companies.
Gopinath says that the UK will likely see its inflation finally stabilise by around 2023. However, most other countries will have already experienced this by mid-2022.
The IMF has also cut the UK’s economic growth forecast down from 7% to 6.8%. However, this isn’t as drastic as the US’s, whose growth forecast has been dropped from 7% to 6%.
However, all is not lost! The IMF suggests that most, if not all advanced economies are expected to be at their pre-pandemic levels in the next two years. This may be because of the high vaccination rates of these countries — for example, 67.2% of the UK population is fully vaccinated, allowing us to return to normality much quicker than we previously thought.
It is also necessary to note that less developed economies could possibly remain below their pre-pandemic forecast by 5.5% even by the time we go into 2024. This could be because of the largely unvaccinated number of people in those countries — the BBC reports that around 96% of people in less developed countries are unvaccinated, which means it is harder for those countries to return to normality.
Furthermore, the IMF predicts the UK to have the highest economic growth in the G7 (the Group of 7) for 2021. However, Faisal Islam, the economics editor for the BBC, suggest that this “should be taken with a pinch of salt” as the prediction is attributed to the fact that the UK “suffered the worst pandemic first wave.”
Written by Jade Andrew