This article is from the source 'guardian' and was first published or seen
on .
It last changed over 40 days ago and won't be checked again for changes.
IMF cuts UK growth forecasts following Brexit vote
IMF cuts UK growth forecasts following Brexit vote
(about 4 hours 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 had 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 run-up 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 before the EU referendum, said it expected the UK economy to grow by 1.3% in 2017, 0.9 percentage points lower than an estimate made in its World Economic Outlook (WEO), in April.
While the fund is currently ruling out a full-blown recession as a result of the Brexit vote, the analysis by one of the leading global economic bodies underlines the financial challenges facing Theresa May’s government, since slower growth will lead to lower tax receipts and a bigger budget deficit.
While the fund is ruling out a full-blown recession, the analysis by one of the leading global economic bodies underlines the financial challenges facing Theresa May’s government during a period when slower growth will lead to lower tax receipts and a bigger budget deficit.
A separate forecast from the European commission provided a gloomier outlook. The commission said the UK would, at best, grow by 1.1% in 2017, but there was a risk that the economy could contract by 0.3% in the worst case scenario.
The IMF 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
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.
A Treasury spokesman said overtures from Australia about a trade deal and the willingness of Softbank to pay £24bn for the technology firm ARM showed the UK could make a success of Brexit. “The decision to leave the EU marks a new phase for the British economy, but our message 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 urged policymakers in the UK and rest of the EU to end the uncertainty. “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.”
The IMF 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.Maury Obstfeld, the IMF’s economic counsellor, said: “The first half of 2016 revealed some promising signs – 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 were 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 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 believes that next year the UK will have similar growth rates to Germany – the eurozone economy most affected by the Brexit-induced slowdown – and France. Germany’s growth is now estimated at 1.2% in 2017, a fall of 0.4 points.
It 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 UK in favour of leaving the EU adds significant uncertainty to an already fragile global recovery. The vote has caused significant political change in the UK, generated uncertainty about the nature of its future economic relations with the EU, and could heighten political risks in the union itself. Continuing uncertainty is likely to weigh on consumption and especially investment.”
“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 WEO update said there was a risk that the impact of the UK’s decision to leave could prove 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.”
“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 IMF outlined two alternative scenarios to its forecast, one moderately worse, one significantly. However, Obstfeld said the resilience of financial markets since 23 June meant that the fund was putting “less weight” on gloomy forecasts.
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 IMF said.
It 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.
Related: There could still be a second referendum in Britain – if EU leaders listen | Vernon Bogdanor
Related: There could still be a second referendum in Britain – if EU leaders listen | Vernon Bogdanor
Policymakers in 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.”
A forecast from the European commission, however, was less sanguine. In its first post-Brexit assessment, the commission said the UK would, at best, grow by 1.1% in 2017, but there was a risk that the economy could contract by 0.3%.
A Treasury spokesman said overtures from Australia about a new trade deal and the willingness of Japan’s Softbank to pay £24bn for the UK technology company ARM Holdings showed that the UK could make a success of Brexit.
The shadow chancellor, John McDonnell, said of the announcement: “Today’s report from the IMF is another blow for the government and further highlights that they had no plan whatsoever for after a Brexit vote.”
“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 spokesman said.
Matt Whittaker, chief economist at the Resolution Foundation, said that if the IMF forecast were right, the UK economy would be £21bn smaller than thought: “A £21bn [cut] in the … economy alone would reduce the tax take by £150m a week.”
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.
The Adam Smith Institute said the “rebooting” of the economy after Brexit should include the scrapping of corporation tax, abolition of subsidies for farmers, and protection of Britain’s fishing waters.
“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.”
Matt Whittaker, the chief economist at the Resolution Foundation, said if the IMF forecast were right, the UK economy would be £21bn smaller than previously anticipated in 2017.
“There is huge uncertainty around the UK’s economic prospects in the wake of the decision to leave the EU, though most agree there will be a short-term hit to growth,” he said.
“The IMF outlook today, while less pessimistic than many of the projections we’ve had from the City, reiterates the scale of the task facing the new chancellor when he sets out his Brexit budget this Autumn. A £21bn reduction in the size of the economy alone would reduce the tax take by £150m a week.”
