IMF slashes growth forecast for ‘tepid’ UK and warns a bad Brexit deal would damage the economy
The International Monetary Fund today slashed its UK growth forecast for this year and warned the British economy was ‘tepid’.
The Washington-based agency said it remained optimistic about a good Brexit deal and had not cut expectations for economic growth in future years.
But high inflation, fuelled by the drop in the value of the pound since the Brexit vote, has left the UK set to grow by 1.7 per cent compared to the 2 per cent it expected in April – making it the worst year for the economy since 2012.
The new figure is still much better than the pre-referendum IMF prediction of a recession if voters backed Brexit.
But the downgrade comes while other EU nations, including Germany, France and Spain have been upgraded by the IMF – the eurozone expecting to grow faster than the UK in both 2017 and 2018.
The Treasury said the report shows why securing the ‘very best deal’ on Brexit with the European Union is ‘vitally important’.
Prime Minister Theresa May has previously insisted that no deal is better than a bad deal when Britain quits the bloc.
Maurice Obstfeld, chief economist of the IMF, said the figure was based purely on the ‘tepid’ economic growth so far in 2017, rather than any concerns over Brexit in the future.
He told BBC Radio 4’s Today programme: ‘I think we stick to our forecasts that Brexit will be a negative to the British economy.
‘Our forecasts are right now that it’s a mild negative, because we have a favourably optimistic view of how the negotiations will go.
‘But if the parties are not reasonable and collaborative, things could be worse.’
In its report, the IMF said: ‘The growth forecast has also been revised down for the United Kingdom for 2017 on weaker-than-expected activity in the first quarter.
‘By contrast, growth projections for 2017 have been revised up for many euro area countries, including France, Germany, Italy, and Spain, where growth for the first quarter of 2017 was generally above expectations.’
UK growth forecasts for next year remain unchanged at 1.5 per cent’, the IMF said.
The IMF was not alone in its initial predictions of calamity. In a ‘dossier of doom’, the Treasury said the economy would suffer a punishing recession following a vote to leave the EU.
But recently the Treasury insisted the fundamentals of the UK economy are strong, with employment at a record high and the deficit down by three quarters since 2009.
A spokesman said: ‘This forecast underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU are vitally important.
‘Employment is at a record high and the deficit is down by three quarters, showing that the fundamentals of our economy are strong.
‘We will continue to deliver greater prosperity and higher living standards for hard working people across the country.’
This is the fifth time the IMF has changed its forecasts since the referendum last year – and none of the figures back up its pre-vote prediction of a deep recession if Britain opted to quit the EU.
‘This is Project Fear all over again. The IMF has been consistently wrong,’ said John Longworth, former director general of the British Chamber of Commerce.
Gerad Lyons, co-founder of Economists for Brexit, added: ‘The UK economy didn’t have the economic collapse, did not have the financial Armageddon they predicted. What we actually see is the UK economy having done pretty well over the last year. They are far too pessimistic. Brexit is good economic news.’
Theresa May’s spokesman described the latest IMF assessment as ‘one of a number of forecasts,’ adding: ‘The UK economy is in a strong position. We have employment at a record high and the deficit down by three-quarters.’
But Lib Dem leader Sir Vince Cable said: ‘The IMF has downgraded its growth forecast more than for any advanced economy. That is largely down to Theresa May’s determination to pursue an extreme Brexit that endangers our free trade with the world’s largest, single market.’
July 24th, 2017: Daily Mail