IMF cuts growth forecasts for UK

The International Monetary Fund (IMF) slashed its growth forecasts for the UK today as it warned that the global economy is in a "dangerous new phase".

The UK will see gross domestic product (GDP) grow 1.1% in 2011, compared with the IMF's last World Economic Outlook report in April of 1.7%, and by 1.6% in 2012, compared with 2.3%.

The forecasts for the UK in 2011 fall behind projections for Germany, France, the US and Canada.

The IMF, now led by former French finance minister Christine Lagarde, warned that the forecasts were dependent on the eurozone debt crisis being contained and US policymakers balancing support for the economy with fiscal tightening.

The downgrade is the latest blow to the UK's recovery prospects after the influential think-tank OECD cut its estimate for growth amid a raft of a disappointing economic data.

However, the gloomy outlook is unlikely to deter Chancellor George Osborne from his tough programme of spending cuts and tax reform as the IMF has previously given full backing to his austerity measures.

Ms Lagarde earlier this month said the UK's stance remained "appropriate" but "the heightened risk" meant a need for a "heightened readiness to respond".

The Chancellor's deficit reduction plans have been challenged by business leaders, economists and opposition politicians in recent months as the economic outlook for the UK deteriorates.

But Mr Osborne is determined to continue with the austerity measures laid out last October in his Comprehensive Spending Review, which he has labelled "the rock of stability" on which the economy is built.

Elsewhere, the IMF said the outlook for advanced economies, including the UK, is for a "weak and bumpy" expansion.

Germany is forecast to grow 2.7% in 2011 while France is expected to show 1.7% growth, the US should advance 1.5% and Canada 2.1%. However, UK growth in 2012 should surpass both Germany and France.

The organisation said policymakers should pay particular attention to the eurozone crisis and weak activity in the US, which both threaten global growth.

The European Central Bank (ECB) must continue to intervene strongly to avoid problems in sovereign debt markets, the report said.

The eurozone debt crisis is showing no signs of abating as Greece hurtles towards defaulting on its debts and after Italy saw its credit rating downgraded by key agency Standard and Poor's.

The IMF said the US Federal Reserve should be prepared to offer more emergency support to the country's economy.

John Hawksworth, chief economist at professional services firm PwC, said: "Downside risks have risen significantly in recent months so it would be wise for both governments and businesses to develop contingency plans in case such as double dip scenario does emerge.

"These new IMF projections certainly support our recent argument for more quantitative easing in the UK sooner rather than later."

John Hawksworth, chief economist at professional services firm PwC, said: "Downside risks have risen significantly in recent months so it would be wise for both governments and businesses to develop contingency plans in case such as double dip scenario does emerge.

"These new IMF projections certainly support our recent argument for more quantitative easing in the UK sooner rather than later."

PA