UK GDP growth to slow to worst in G7 in 2023, says IMF – business live | Business

Russia’s government will challenge freezing orders on much of its foreign currency reserves in court, according to its central bank chief.

Elvira Nabiullina, governor of the Central Bank of the Russian Federation, said Russia would challenge asset freezes under sanctions by the US, EU, UK and others which have prevented it from accessing up to $300bn (£230bn) of its reserves – almost half of the total.

The freeze on reserves has been one of the Western allies’ most financially damaging moves in response to Vladimir Putin’s invasion of Ukraine, limiting Russia’s ability to slow the steep drops in the value of the rouble against other currencies.

Russian news agency Interfax on Tuesday quoted Nabiullina at a discussion of the central bank’s annual report with the Communist Party of the State Duma. She reportedly said:

Of course, this is an unprecedented ‘freeze’ of the gold and forex reserves, so we will be preparing all lawsuits, and we are preparing to file them, as this is unprecedented on a global scale, for the gold and forex reserves of such a large country to have been frozen. […]

But our reserves have not been seized, they have been ‘frozen’, we cannot make use of them, but they have not been taken away, expropriated or seized, but ‘frozen’ and we will of course be challenging this in all instances.

Russia has previously proven itself adept at using courts, including the successful pursuit of Sergei Pugachev, a former senior Kremlin official who ran an election campaign for Putin, in London courts to claim ownership of UK property Russia claimed was bought with stolen funds.

Former president Dmitry Medvedev, who advises Vladimir Putin on national security matters, said this month that Russian businesses whose assets were subject to sanctions would take legal action in the US, EU and elsewhere. His claim was later backed up by Russia’s finance minister, Anton Siluanov.

Nabiullina was quoted as saying that the central bank’s reserves were “essentially divided into two parts”. She said the first part of the reserves, in dollars, euros and pounds, was supposed to protect the domestic market from financial crises, and the second, in gold and yuan, in the event of a geopolitical crisis.

The report made no mention of Russia’s invasion of Ukraine.

For the UK’s prospects, it is worth noting that the IMF GDP downgrade for 2023 is also the biggest of the G7, suggesting that its economists think things have worsened quickly.

The IMF said:

In the United Kingdom, GDP growth for 2022 is revised down 1 percentage point—consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment.

The US Federal Reserve and other central banks are looking at how to tame inflation. Here is the IMF’s view of how price increases will hit across the world.

It is in the US where inflation is expected to spike highest. The US was already thought to be “running hot” by many economists following the truly enormous fiscal stimulus created in its pandemic response. Now the IMF sees inflation hitting almost 9% by the summer.

But it’s also worth noting the massive jump in the latest inflation forecasts in so-called emerging markets and developing economies. That has been driven by food and fuel prices, both of which have been hugely affected by the war in Ukraine.

1h ago09.41

Larry Elliott

First it was rising inflationary pressures caused by supply-side bottlenecks. Then it was the arrival of the new Omicron variant towards the end of 2021. Now it is the war in Ukraine, something not anticipated when the Washington-based organisation last published its assessment in January but which dominates the IMF’s world economic outlook.

The IMF also warns the war has exacerbated two tricky policy dilemmas, one facing central banks and one troubling finance ministers.

You can read the full analysis from the Guardian’s economics editor, Larry Elliott, here:

Here is the IMF’s data table outlining the main forecasts at its spring meetings in Washington.

Beyond the major economies, it is worth noting the deep recession that Russia is expected to have this year and next following its effective isolation from much of the global economy under Vladimir Putin.

Putin’s war on Ukraine is the biggest known unknown in the forecasts.

Pierre-Olivier Gourinchas, the IMF’s research department director, said:

Uncertainty around these projections is considerable, well-beyond the usual range. Growth could slow down further while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports.

The UK is expected to show the joint-fastest growth in the G7 this year, despite having its growth estimate cut from 4.7% to 3.7%. However, the outlook will worsen rapidly, according to the IMF.

The Washington-based lender said that it expects GDP growth of only 1.2% in 2023, just over half the rate previously expected.

That will mean the UK will face the weakest growth and the highest inflation of any G7 country in 2023, the IMF said.

2h ago09.12

IMF downgrades global GDP growth forecast from 4.4% to 3.6%

Larry Elliott

The International Monetary Fund has cut its global growth forecasts because of the war in Ukraine, warning that Russia’s invasion could lead to the fragmentation of the world economy into rival blocs.

In a half-yearly update, the IMF said prospects had worsened “significantly” in the past three months as it reduced its growth estimate for 2022 from 4.4% to 3.6%.

The Washington-based body said every member of the G7 group of leading industrialised nations and the bigger developing countries would grow less rapidly this year than previously expected, and there was a strong risk of an even worse outcome.

You can read the full report here:

Another step in the decline in UK-Russia relations: the Treasury has said it plans to revoke the Moscow Stock Exchange’s status as a recognised stock exchange in response to Russia’s invasion of Ukraine.

The move which would remove some tax relief for investors, according to Reuters. Yet it is the symbolism that is arguably more important, after two decades during which the UK pushed for closer links between the City of London and Russia. In particular, 31 companies – including some of the titans of the Russian state-controlled energy complex – had share instruments listed on the London Stock Exchange.

The UK’s financial secretary to the Treasury, Lucy Frazer, said in a statement:

Revoking Moscow Stock Exchange’s recognised status sends a clear message – there is no case for new investments in Russia.

For all the concerns about supply chains and concerns over a possible US recession, it looks like US housing market is motoring along.

US housebuilders started on 1.79m new homes in March, nudging up from the previous month and almost 50,000 more than economists expected, according to the US Census Bureau.

But then again we already knew that external shocks are the biggest lights flashing red on global economists’ radars.

When did you realise you were out of your depth? asks Conservative MP Richard Fuller.

We realised in the autumn of last year that it was a very challenging time for the company, and we needed to change the fundraising process to a sale process, Wood says.

Darren Jones says he senses Wood’s personal regret over the business’s failure, but asks did you know it was a high-risk model? Wood says:

I can assure you we never adopted a high-risk approach and were willing to risk the company failing.

Up until the autumn of last year we had not seen a significant risk.

Hindsight is a wonderful thing, but with the benefit of hindsight what we would have done is begin those funding conversations sooner, complete a funding round in 2020 during the pandemic, have increased collateral and be able to hedge out for longer periods of time.

We didn’t object to takeover offers before the collapse in search of a higher valuation, Wood says.

He says he cannot give a view on what the administrator will do if no sale is agreed in the next few months.

After a long pause, he says: “I don’t think it’s responsible for me to share details of a sales process that is ongoing in a public forum.”

Wood is asked about his continued salary of a quarter of a million pounds. Labour MP Andy McDonald asks: “Is that morally justifiable?”

Wood says he is doing everything he can to minimise the costs to taxpayers.

“Quite frankly I think a lot of us find that absolutely staggering,” McDonald says.

Wood argues that Bulb collapsed in part because it was unable to access hedging markets of larger rivals.

That meant it was unable to hedge against the big rises in wholesale energy prices that caused chaos in the industry – and pushed 29 suppliers into bankruptcy. Bulb is the biggest casualty so far.

Wood argued that it was taken by surprise, like other suppliers. “We saw the business model as very realistic,” he said.

He added: “We were not using customer credit balances to finance growth.”

Next up in front of MPs is Hayden Wood, chief executive and co-founder of Bulb Energy, the energy provider which collapsed in November. The collapse has meant that taxpayers have had to put aside £1.7bn.

Wood said:

I am very sorry with the way things turned out with Bulb.

Darren Jones, the chair of the business committee, has asked how much money he invested. Wood said he put in “all of my personal savings in 2015”.

Jones then asked about his salary. Wood responded that it remains £250,000 per year – the same as before the company’s collapse – after he was asked to stay on by administrators.

In related news, oil markets have been jumpy on Tuesday – benchmark North Sea crude prices have dropped by 1.4%.

Brent crude had only dipped earlier on Tuesday morning, but has now fallen by $1.50 per barrel to $111.72. West Texas Intermediate, the North American benchmark, is down by 1.5% to $106.51.

Among the significant moving parts at the moment are supply worries from Libya and uncertainty over when Shanghai’s industry will restart fully amid strict lockdowns. Reuters reported:

Oil prices see-sawed on Tuesday as investors fretted over tight global supplies after Libya halted some exports and as factories in Shanghai prepared to reopen post a Covid-19 shutdown, easing some demand worries.

Prices came under pressure with the dollar trading at a fresh two-year high. A firmer greenback makes commodities priced in dollars more expensive for holders of other currencies.

One of the big political questions during the cost-of-living/energy crisis has been whether the UK should introduce a windfall tax on oil and gas producers whose profits are in many cases booming.

Unsurprisingly, the fuel producers are against that.

Chris O’ Shea, chief executive of Centrica, which also owns oil and gas production in Norway, said:

A one-off windfall tax has I think in the past been shown to deter investment, so I would suggest a root and branch review of that and then decide what best gives us the outcome that we’re looking for.