The International Monetary Fund has slashed its growth forecast for the United Kingdom for the second time in less than three months, and as might be expected, Brexit is to blame.
In its latest World Economic Outlook, the IMF shaved off 0.2 percentage points from its previous economic forecast for the UK, estimating growth of just 1.1% in 2017.
That compares to the forecast of 1.3% in July’s report, which was in itself a 0.8 percentage point cut from the IMF’s April forecast, and was an initial reflection on the consequences of Brexit.
This year the UK will grow by 1.8%, which actually marks a 0.1 percentage point increase from July, although it is still beneath the forecasts made prior to the referendum. The World Economic Outlook points to the better than forecast economic data coming out of the country, helped by the Bank of England’s swift action in cutting interest rates and relaunching quantitative easing, as the reasons for this minor bump.
The Washington-based institution’s chief economist Maurice Obstfeld said in the foreword to the report that since the last full WEO report in April: “Political tensions have now made advanced economies a major locus of policy uncertainty.”
Continuing, Obstfeld said: “Most dramatically, the unexpected vote for Brexit on June 23 leaves unclear the future shape of the United Kingdom’s trade and financial relations with the remaining 27 European Union (EU) members, introducing political and economic uncertainties that threaten to dampen investment and hiring throughout Europe.”
The IMF was a harsh critic of Brexit before the vote, warning a vote to exit the European Union could leave Britain’s economy more than 5% smaller by 2019 than with a vote to remain in April.
However, while it has now cut its economic forecasts for the second time in the course of three months, the Fund’s expectations for the British economy are actually a little higher than many other major institutions. The Bank of England for instance — which is often below consensus with its forecasts — expects just 0.8% growth in 2017, while the Organisation for Economic Cooperation and Development sees growth running at 1% next year.
More broadly, the IMF left both its 2016 and 2017 forecasts for global growth unchanged, with Obstfeld saying: “We project global output growth at 3.1 per cent in 2016 and 3.4 per cent in 2017 — the same as in early July, shortly after the United Kingdom’s “Brexit” vote to leave the European Union.
Within this broad outlook, however, we have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world.”
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