You might suspect, if you didn’t know better, that the International Monetary Fund has a special animus towards Britain.
In its latest quarterly report, the financial agency slashed its UK forecast for next year to 0.6 per cent, the weakest economic growth across the G7.
Its earlier forecast of 1pc for 2024 is wrong, it says, because interest rates will have to remain high due to persistent inflation.
But here’s the thing. The IMF bases this prognosis on interest rates at 6 per cent rather than the present 5.25 per cent, and accepts that it is out of date.
This is deeply flawed to say the least, as the Bank of England paused rates last month at its MPC meeting on September 21 following a sharper drop in inflation than expected.
Gloomy outlook: In its latest quarterly report, the IMF slashed its UK forecast next year to 0.6%, the weakest economic growth across the G7
Since then, most commentators reckon interest rates may well have peaked.
At the worst, the Bank may nudge rates up to 5.5 per cent but only a handful of pessimists are pitching 6pc. Including the IMF. How odd is that?
Here is another bizarre caveat thrown up by the IMF, which is included in the notes index of the report: ‘UK projections do not incorporate the significant statistical upward revisions to 2020 and 2021 GDP that were previewed on September 1, 2023.’
That’s the date when the Office for National Statistics updated its 2021 growth figures following new data which showed the post-pandemic recovery was 0.6 per cent larger than pre-Covid levels rather than 1.2 per cent smaller.
What is even more bizarre is that the IMF confirms that it ‘locked down’ its report on September 26.
But that was nearly a week after the MPC held rates and nearly three weeks after the ONS update.
Don’t they have the internet in Washington? Or are the economists at the IMF plain lazy? Or do they enjoy trashing the UK so much they couldn’t be bothered to update the report?
Who knows, but it’s hard to believe that such a supposedly reputable international organisation could be so partisan.
Yet its boffins keep getting it wrong. Over the last seven years, the IMF got two forecasts right. In April, it predicted the UK would be in recession.
Still, the IMF managed to squeeze in a tiny bit of good news. GDP this year will be higher at 0.5 per cent, up from 0.4 per cent. Bet they are wrong again.
However, the IMF’s errors can’t disguise the facts. Growth is sluggish – the direct result, and aim, of higher interest rates.
Even so, over the three years to 2024, the UK will have grown faster than most of Europe.
So the UK is not an outlier – the whole of Western Europe is suffering depressingly low growth.
This latest mishap is a salutary reminder: forecasts are often little better than reading leaves in a teacup. They should be taken with not just a pinch of salt but a couple of truck loads of the stuff. Followed by an IMF news black out.
Gauging fear
It is surprising how calm the financial markets are considering the horror of deadly war between Israel and Hamas, and the potential for the conflict to escalate throughout the region.
The main impact has been on oil prices, gold and the inevitable jump in defence stocks. Otherwise, the main indices appeared to have shrugged off the dangers of much wider geopolitical conflict.
It could be that markets are already so worried about rising bond yields in the US, Germany and UK on the back of higher interest rates that they can’t absorb any more shocks.
Yields on the benchmark 10-year US Treasury are at levels not seen in 16 years.
The rises, triggered by concerns over the gigantic US deficit and the Federal Reserve’s policy of quantitative tightening, have pushed up the CBOE Volatility Index – the Vix fear gauge – to levels not seen since 2007. The calm before the storm.
Love is blind
No one should be surprised by Mark Carney’s love affair with Labour and his creepy endorsement of shadow chancellor, Rachel Reeves.
The former Bank of England governor always backed the wrong horse – forward guidance, Project Fear ahead of Brexit, QE and keeping interest rates too low for too long.
But we can’t blame Carney alone. It is the fault of ex-chancellor George Osborne, who was obviously besotted by the Canadian.
Yet there was an obvious home-grown contender – former Bank economist Andy Haldane – right in front of him, one who would have put up rates earlier and faster.
