The International Monetary Fund (IMF) has cut its growth forecast for the UK economy this year after a weak performance in the first three months of 2017.
In its first downgrade for the UK since the EU referendum in June last year, the IMF said it expected the British economy to expand by 1.7 per cent this year, 0.3 points lower than when it last made predictions in April.
The fund raised its forecasts for the UK after the Brexit vote as a result of the much stronger than envisaged activity in the second half of 2016. In October 2016, it pencilled in growth of 1.1 per cent for 2017, raising this forecast to 1.5 per cent in January this year and to 2 per cent in April.
Maurice Obstfeld, the IMF's economic counsellor, pointed to a marked change in early 2017. He said the UK's growth forecast had been lowered based on its "tepid performance" so far this year, adding "the ultimate impact of Brexit on the United Kingdom remains unclear".
The IMF left its growth forecast for the UK in 2018 unchanged at 1.5 per cent, but said one key risk facing the global economy was that the Brexit talks would end in failure.
Growth upgrades
It contrasted its gloomier outlook for the UK with a rosier forecast for the rest of the EU, with 2017 growth upgrades for the four biggest euro zone countries – Germany, France, Italy and Spain.
Germany has been revised up by 0.2 points to 1.8 per cent, France by 0.1 points to 1.5 per cent, while Italy and Spain have both been revised up by 0.5 points to 1.3 per cent and 3.1 per cent respectively.
The fund produces a world economic outlook in April and October to coincide with its spring and annual meetings, but provides updates in January and July.
Launching the report in Kuala Lumpur, Mr Obstfeld said the IMF had left its global growth forecasts unchanged at 3.5 per cent in 2017 and 3.6 per cent for next year, noting that the stronger performance by the euro zone, China and Japan had been offset by weaker performances elsewhere.
“The recovery in global growth that we projected in April is on a firmer footing; there is now no question mark over the world economy’s gain in momentum,” Mr Obstfeld said.
He added that Donald Trump’s failure so far to push through his promised package of tax cuts had dampened US growth prospects.
“From a global growth perspective, the most important downgrade is the United States. Over the next two years US growth should remain above its longer-run potential growth rate. But we have reduced our forecasts for both 2017 and 2018 to 2.1 per cent because near-term US fiscal policy looks less likely to be expansionary than we believed in April.”
Electoral shocks
Three months ago the IMF said it expected growth in the world’s biggest economy to be 2.3 per cent this year and 2.5 per cent next.
The fund said that while the risk of a repeat of the electoral shocks of 2016 – Brexit and Mr Trump’s presidential victory – had declined, policy uncertainty remained at a high level and could rise further.
It singled out “difficult-to-predict US regulatory and fiscal policies, negotiations of post-Brexit arrangements, or geopolitical risks”, all of which it said could harm confidence, deter private investment and weaken growth. – Guardian Service
