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IMF expert: Families may need help with energy bills

Struggling UK families may need help with energy bills as inflation soars, an International Monetary Fund expert has said.

It comes as the IMF predicted that the UK economy will grow more slowly than expected this year as it recovers from the Covid pandemic.

The forecast for UK growth in 2022 was cut to 4.7% from 5% in the IMF’s latest world economic outlook.

However, this will be the fastest in the G7 industrialised nations.

It partly reflects a rebound from sharp falls the UK suffered during initial pandemic lockdowns two years ago.

The International Monetary Fund is an organisation of 190 countries that works to secure financial stability.

Its first deputy managing director, Gita Gopinath, told the BBC that targeted help might be needed to help vulnerable households deal with higher energy bills as they face a cost-of-living squeeze.

She said: “The UK has done very well on the vaccination front, on testing and tracing and so on.

“All that has to be continued. An argument can be made that, especially for instance, in April, as more of the energy price pass-through happens, then that could be a big, sharp increase in the cost of living.

“And one could see a case for very, very targeted help to highly vulnerable households for a short space of time.”

Surging food and energy prices drove inflation to 5.4% in the 12 months to December, up from 5.1% the month before, in a blow to struggling families.

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Analysis box by Faisal Islam, economics editor

The International Monetary Fund expressed concern that a Russian invasion of Ukraine could see energy prices go even higher and stay there for longer.

Its first deputy managing director, Gita Gopinath, backed the idea of help with spiralling energy bills in the UK.

That intervention could be helpful to the Treasury, which is currently deciding what type of help could be given to mitigate a £50-a-month rise in bills.

Some MPs want the government to delay its announced rise in National Insurance, especially after lower-than-expected public borrowing figures.

The Treasury is believed to be looking instead at focusing support on those most in need.

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Omicron woes

On Tuesday, the IMF sharply downgraded its forecasts for the two biggest global economies – the US and China – citing high energy prices and new Covid curbs among its reasons.

Overall, the IMF now expects global growth to go from 5.9% in 2021 to 4.4% in 2022, half a percentage point lower for this year than in its last prediction in October 2021.

“The global economy enters 2022 in a weaker position than previously expected,” said the IMF report.

As the new Omicron Covid-19 variant spread, countries had reimposed restrictions, it added.

“Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the US and many emerging market and developing economies.

“And the ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption have limited growth prospects.”

The IMF predicted that the higher levels of inflation currently seen in the global economy would go on for longer than it anticipated in its last forecast, persisting for most of 2022.

It said supply chain disruptions, energy price volatility and localised wage pressures meant that “uncertainty around inflation and policy paths” was high.

Big revisions

US economic growth for this year was downgraded by the IMF from 5.2% to 4% after it removed the effects of President Joe Biden’s Build Back Better fiscal policy package from its calculations.

The legislation is currently stalled in Congress and is unlikely to be enacted in its present form.

China’s forecast for 2022 was cut from 5.6% to 4.8%.

“In China, disruption in the housing sector has served as a prelude to a broader slowdown,” the IMF report said.

“With a strict zero-Covid strategy leading to recurrent mobility restrictions and deteriorating prospects for construction sector employment, private consumption is likely to be lower than anticipated.”

The IMF said the cut in expectations for global growth also reflected revisions among some other large emerging markets.

In particular, the two biggest Latin American economies, Brazil and Mexico, suffered the largest growth downgrades.

Brazil, where far-right President Jair Bolsonaro is seeking re-election later this year, is now expected to grow by just 0.3% in 2022, down from the previous forecast of 1.5%.

Mexico also saw a downgrade of 1.2 percentage points and is now predicted to see growth of 2.8%.  –