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IMF cuts UK growth forecasts following Brexit vote IMF cuts UK growth forecasts following Brexit vote
(35 minutes later)
The International Monetary Fund has slashed its forecast for UK growth next year after warning that the decision to leave the EU has damaged the British economy’s short-term prospects and “thrown a spanner in the works” of the global recovery.The International Monetary Fund has slashed its forecast for UK growth next year after warning that the decision to leave the EU has damaged the British economy’s short-term prospects and “thrown a spanner in the works” of the global recovery.
The IMF, which voiced strong misgivings about a vote for Brexit in the runup to the EU referendum, said it expected the UK economy to grow by 1.3% in 2017, 0.9 points lower than a previous estimate made in its April world economic outlook (WEO).The IMF, which voiced strong misgivings about a vote for Brexit in the runup to the EU referendum, said it expected the UK economy to grow by 1.3% in 2017, 0.9 points lower than a previous estimate made in its April world economic outlook (WEO).
The Fund added that it had cut its forecasts for the global economy due to the likely knock-on effect of the vote on other countries, particularly in Europe. The fund said it had cut its forecasts for the global economy due to the likely knock-on effect of the vote on other countries, particularly in Europe.
Related: IMF cuts UK and global growth forecasts following Brexit vote - business live
Maury Obstfeld, the IMF’s economic counsellor, said: “The first half of 2016 revealed some promising signs – for example, stronger than expected growth in the euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies.Maury Obstfeld, the IMF’s economic counsellor, said: “The first half of 2016 revealed some promising signs – for example, stronger than expected growth in the euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies.
“As of 22 June [the day before the referendum], we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works.”“As of 22 June [the day before the referendum], we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works.”
The IMF predicted global growth of 3.1% in 2016 and 3.4% in 2017, both of which are 0.1 points lower than forecast in April. Britain is still expected to be the second-fastest growing economy in the G7 this year, behind the US, despite having its growth forecast for 2016 trimmed by 0.2 percentage points to 1.7%.The IMF predicted global growth of 3.1% in 2016 and 3.4% in 2017, both of which are 0.1 points lower than forecast in April. Britain is still expected to be the second-fastest growing economy in the G7 this year, behind the US, despite having its growth forecast for 2016 trimmed by 0.2 percentage points to 1.7%.
Next year, the Fund believes that the UK will experience similar growth rates to Germany – the eurozone economy most affected by the Brexit-induced slowdown – and France. Next year, the IMF believes that the UK will experience similar growth rates to Germany – the eurozone economy most affected by the Brexit-induced slowdown – and France.
The IMF said: “The vote in the United Kingdom in favour of leaving the European Union adds significant uncertainty to an already fragile global recovery. It said: “The vote in the United Kingdom in favour of leaving the European Union adds significant uncertainty to an already fragile global recovery.
“The vote has caused significant political change in the United Kingdom, generated uncertainty about the nature of its future economic relations with the European Union and could heighten political risks in the European Union itself.“The vote has caused significant political change in the United Kingdom, generated uncertainty about the nature of its future economic relations with the European Union and could heighten political risks in the European Union itself.
“This erosion of confidence was reflected in a large initial sell-off in global financial markets, which has since partly reversed. But continuing uncertainty is likely to weigh on consumption and especially investment.”“This erosion of confidence was reflected in a large initial sell-off in global financial markets, which has since partly reversed. But continuing uncertainty is likely to weigh on consumption and especially investment.”
The update to the WEO said there was a risk that the impact of the UK’s decision to leave the EU could prove to be worse than expected. “With Brexit still very much unfolding, the extent of economic and political uncertainty has risen, and the likelihood of outcomes more negative than the one in the baseline has increased,” the Fund said. The update to the WEO said there was a risk that the impact of the UK’s decision to leave the EU could prove to be worse than expected. “With Brexit still very much unfolding, the extent of economic and political uncertainty has risen, and the likelihood of outcomes more negative than the one in the baseline has increased,” the fund said.
The IMF outlined two alternative scenarios to its forecast, one moderately worse and one significantly worse than the baseline prediction. However, Obstfeld said the resilience of financial markets since 23 June meant that the Fund was putting “less weight” on those gloomy forecasts, particularly the more severe one. The IMF outlined two alternative scenarios to its forecast, one moderately worse and one significantly worse than the baseline prediction. However, Obstfeld said the resilience of financial markets since 23 June meant that the fund was putting “less weight” on those gloomy forecasts, particularly the more severe one.
Policymakers in both the UK and the rest of the EU had a vital role to play in reducing uncertainty, the IMF said. “Of primary importance is a smooth and predictable transition to a new set of post-exit trading and financial relationships that as much as possible preserves gains from trade between the UK and the EU,” it said. Related: There could still be a second referendum in Britain – if EU leaders listen | Vernon Bogdanor
Policymakers in both the UK and the rest of the EU have a vital role to play in reducing uncertainty, the IMF said. “Of primary importance is a smooth and predictable transition to a new set of post-exit trading and financial relationships that as much as possible preserves gains from trade between the UK and the EU,” it said.
A Treasury spokesman said: “The decision to leave the European Union marks a new phase for the British economy, but the message we take to the world is this: our country remains open for business. We are the same outward-looking, globally minded, big-thinking country we have always been.”A Treasury spokesman said: “The decision to leave the European Union marks a new phase for the British economy, but the message we take to the world is this: our country remains open for business. We are the same outward-looking, globally minded, big-thinking country we have always been.”
The IMF said it had revised up its forecast for eurozone growth in 2016 due to a stronger than expected performance in the first half of the year. Its forecast for eurozone growth in 2017 had been cut by 0.2 points to 1.4% as a result of increased business and consumer uncertainty, and the additional stress that Brexit will have on vulnerable eurozone banks. Projections for other large economies such as the US, China and India were little changed by the referendum result. The IMF said it had revised up its forecast for eurozone growth in 2016 because of a stronger than expected performance in the first half of the year. Its forecast for eurozone growth in 2017 had been cut by 0.2 points to 1.4% as a result of increased business and consumer uncertainty, and the additional stress that Brexit will have on vulnerable eurozone banks. Projections for other large economies such as the US, China and India were little changed by the referendum result.
“From a macroeconomic perspective, the Brexit vote implies a substantial increase in economic, political and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies,” the WEO said. “But with the event still unfolding, it is very difficult to quantify its potential repercussions.”“From a macroeconomic perspective, the Brexit vote implies a substantial increase in economic, political and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies,” the WEO said. “But with the event still unfolding, it is very difficult to quantify its potential repercussions.”