The International Monetary Fund has cut its UK growth forecasts again on the back of the Brexit vote.
In July, soon after the 23 June referendum, the IMF cut its 2016 GDP growth forecast from 1.9 per cent to 1.7 per cent and the 2017 forecast from 2.2 per cent to 1.3 per cent.
On Tuesday it trimmed the 2017 forecast further to 1.1 per cent, although it has revised up this year’s growth forecast to 1.8 per cent on the back of stronger than expected growth in the second quarter of the year.
The Fund said it has also revised down its medium term GDP growth potential forecasts for the UK from 2.1 per cent to 1.9 per cent due to the expectation that lower migration, trade and capital flows would take a toll.
Survey results and some “hard” data from the Office for National Statistics since the vote has come in stronger than expected and City of London economists have been revising away their expectations that the UK will enter a new recession this year.
The Bank of England is currently forecasting growth of 0.3 per cent in the third quarter of the year, following a 0.7 per cent expansion in the second quarter.
But the IMF said that growth is still likely to slow significantly over the next two years, as a consequence of uncertainty weighing on private firms’ investment and hiring.
It added that consumer confidence was still likely to be negatively affected and that inflation would rise sharply to 2.5 per cent next year, thanks to the more than 10 per cent depreciation of sterling in the wake of the 23 June vote.
The Fund said its latest forecasts, which are close to those of the OECD’s latest projection update last month, were predicated on the assumption that the UK’s Brexit negotiations with the rest of the EU proceed smoothly and that there is only a “limited” increase in economic barriers.
“The unexpected vote for Brexit... leaves unclear the future shape of the United Kingdom’s trade and financial relations with the remaining 27 EU members, introducing political and economic uncertainties that threaten to dampen investment and hiring throughout Europe,” said the Fund’s economic counsellor Maurice Obstfeld. He added that the Brexit vote reflected growing resentment of cross-border migration, which has fuelled dangerous nationalist sentiment in Europe.
The Prime Minister Theresa May said on Sunday that she will trigger the Article 50 exit procedure before March next year, but has still not outlined what kind of trade relations she hopes to secure for the UK with the rest of the EU.
On the policy front, the IMF said that the Bank of England’s monetary stimulus since the Brexit vote was “appropriately geared” to supporting lending and that the Chancellor should consider a near-term discretionary easing of fiscal policy.
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
The Bank has indicated that it may cut interest rates again later this year, although stronger than expected surveys in August and September have prompted traders to reduce their wagers on such an outcome.
Mr Obstfeld said that the world’s recovery from the global financial crisis of 2008-09 was “still weak and precarious” and recommended renewed fiscal stimulus from governments, to complement structural reforms and active monetary policies. The IMF expects global growth of 3.1 per cent this year, rising to 3.4 per cent in 2017.
Mr Obsteld said the view that current rates of expansion were acceptable ignored the fact that a large number of developing economies have stagnant per capita incomes and there are still output gaps in many high-income economies.
“Significant opportunities for boosting jobs and incomes around the world are being lost today through short-sighted policy approaches,” he said.Reuse content