The UK will be the only major economy to contract this year, according to the International Monetary Fund. The IMF predicts the UK economy will shrink by 0.6 percent in 2023, a downgrade from the 0.3 percent growth it expected in its last review in October.

It means the UK is the only member of the G7 group of nations facing a shrinking economy this year. If predictions are correct it will also be the only one not to reach its pre-pandemic level before 2024.

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The news is likely to add pressure on Finance Minister Jeremy Hunt and his economic plan for the world's sixth largest economy. The expected fall in gross domestic product (GDP) this year contrasts sharply with 2022, when the UK's GDP grew by estimated 4.1 percent, according to the IMF - higher than any G7 nation.

The pound sterling hit a one-week low against the U.S. dollar following the IMF's report and major UK stock indices edged lower in early trading.

A series of challenges

In its Global Growth Outlook, the IMF - which works to stabilize international economic growth - said the UK was facing a series of challenges. It has been increasingly dependent on natural gas imports since the conflict in Ukraine started, which will drive up the cost of living further, said IMF Chief Economist Pierre-Olivier Gourinchas.

The report also highlighted a shortage of workers and rising interest rates hurting consumers, with inflation at 10.5 percent in December.

In November, Hunt announced a series of tax rises and spending cuts in a bid to restore confidence in the economy following a damaging "mini-budget" announced during the leadership of Former Prime Minister Liz Truss in September.

"All these factors taken together lead to a fairly sharp retrenchment of activity in 2023," Gourinchas said.

Long-term prospects

In response to the IMF report, Hunt said most major economies were facing problems, and that previous forecasts from bodies like the IMF had proved inaccurate. 

"Short-term challenges should not obscure our long-term prospects," said Hunt.

Unlike other G7 peers, the UK is also reeling from the fallout of Brexit, which happened three years ago to the day. Many businesses have struggled with cumbersome rules and regulations since then. The EU remains the UK's largest trading partner but total trade has fallen since Britain's departure from the bloc.

The Bank of England is expected to hike interest rates for the 10th consecutive time when its policymakers meet later this week. The bid to curb inflation will further increase mortgage and borrowing costs.

The government has pledged to halve inflation this year, with Hunt expected to outline his plan to boost growth in a budget on March 15.