IMF lowers UK GDP forecast to 1.7% amid Brexit uncertainty
The International Monetary Fund has downgraded its forecast for Britain’s economy, describing its recent performance as “tepid”.
In a summer update to its twice yearly forecasts, the fund said the UK economy was slowing and likely to grow only 1.7 per cent this year, down 0.3 percentage points from its forecast in April.
In contrast, the eurozone is expected to outperform the UK this year, growing 1.9 per cent, the IMF said. But it cut its forecast for the US to 2.1 per cent for this year and next.
The IMF upgraded its forecasts for the growth of the world economy to 3.5 per cent this year and 3.6 per cent in 2018, both up from 3.2 per cent last year.
In the wake of the Brexit vote, the IMF initially cut its 2017 forecast hard but then changed its mind when the UK continued to post strong economic data in the second half of 2016, raising its estimate to 2 per cent for 2017.
The fund said it has been surprised again, this time by the weakness in the economy in the first quarter, when growth was only 0.2 per cent. UK households have been squeezed by rising inflation after the pound weakened in the wake of the Brexit vote.
Maurice Obstfeld, the IMF’s chief economist, said: “Our projection for the United Kingdom this year is . . . lowered, based on the economy’s tepid performance so far.
“The ultimate impact of Brexit on the United Kingdom remains unclear,” he added.
The downgrade was the largest in any advanced economy. The IMF left its lacklustre 1.5 per cent growth forecast for 2018 unchanged.
A Treasury spokesperson used the forecast to press the case for a softer Brexit with a long transition deal to protect the economy and jobs. “This forecast underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU, are vitally important,” the spokesperson said.
“Employment is at a record high and the deficit is down by three quarters, showing that the fundamentals of our economy are strong,” he added.
The IMF also revised down its forecast for the US economy, also reflecting worse than expected performance in the first quarter but also because it has become more pessimistic that the Trump administration will be able to legislate for growth-enhancing fiscal reforms.
The weaker-than-expected performance in the two main Anglo Saxon economies contrasts with forecast upgrades for the eurozone and for China, where economic figures have been stronger than expected this year.
The summer upgrade to the IMF forecast is not a full forecasting round for the fund and mostly just an update of its April forecast to reflect the first quarter data that was unknown in the spring.