The UK economy will shrink and perform worse than other advanced economies, including Russia, as the cost of living continues to hit households, the International Monetary Fund has said.
The IMF said the economy will contract by 0.6% in 2023, rather than grow slightly as previously predicted.
However, the IMF also said that after the Autumn Statement plans it thinks the UK is now "on the right track".
Chancellor Jeremy Hunt said the UK outperformed many forecasts last year.
But shadow chancellor Rachel Reeves said the figures showed the UK "lagging behind our peers".
The IMF, which works to stabilise economic growth, said its new forecast reflected the UK's high energy prices and factors such as high inflation.
The UK is expected be the only country to shrink next year across all the advanced and emerging economies. Even sanctions-hit Russia is now forecast to grow this year.
If a country's economy shrinks, typically this means companies make less money and the number of people unemployed rises.
Last year, IMF chief economist Pierre-Olivier Gourinchas said the UK had "one of the strongest growth numbers in Europe".
He said this year's forecast reflected the UK's "high dependence on liquid natural gas" and that employment was still below pre-pandemic levels.
Mr Gourinchas said the plans outlined by the Treasury in the months since the Autumn Statement showed the UK was "certainly trying to carefully navigate these different challenges and we think that they are on the right track".
The IMF expects the UK to grow in 2024, revising up its forecast to 0.9% from 0.6%.
'Heading for recession'
Paul Johnson, director of the Institute for Fiscal Studies, said that the IMF had got its forecasts wrong in the past, and he noted the fund was "actually being more optimistic than it was a few months ago".
Forecasts from the Bank of England due later this week are likely to be more positive than they were two or three months ago, he added.
"My best guess is that the economy will be broadly stagnant this year. That we're not going to get much in the way of growth but we're not going to have a deep recession either," he told the BBC's Today programme.
"Now that's not great, particularly as we should be bouncing back more strongly from Covid and particularly as we've not been growing terribly well for the last decade and more."
The IMF's bleak picture for the UK comes after Mr Hunt warned it was "unlikely" that there would be room for any "significant" tax cuts in the Spring Budget.
The chancellor, who has been under pressure from some in his party to cut taxes to stimulate the economy, has said that lowering inflation "is the best tax cut right now".
Inflation - the rate at which prices rise - remains close to its highest level for 40 years.
Prime Minister Rishi Sunak has pledged to halve inflation by the end of the year, but many expect this to happen anyway largely due to a slowdown in energy price rises and as post-pandemic supply problems ease.
The government's official independent forecaster the Office for Budget Responsibility (OBR) expects inflation, which measures the rate of price rises, to fall to 3.75% by the end of this year - well below half the current level.
Andrew Bailey, the governor of the Bank of England, has also said inflation is likely to fall rapidly this year but has warned a UK recession is still on the cards.
While the IMF predicts the UK economy will contract, it forecasts economic growth of 1.4% in the US, 0.1% in Germany and 0.7% in France.
Mr Hunt said the IMF's figures "confirm we are not immune to the pressures hitting nearly all advanced economies".
"Short-term challenges should not obscure our long-term prospects - the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years," he added.
Economic forecasters are not always right when it comes to predicting the future. The IMF has said its forecasts for most advanced economies like the UK's have more often than not been within about 1.5 percentage points of what actually happens.
The IMF said the trend of central banks putting up interest rates to try to curb inflation and the war in Ukraine continued to "weigh on economic activity" across the world.
But it said China reopening its economy from Covid restrictions "paved the way for a faster-than-expected recovery" globally.
Source: BBC
Image: Business Today
