IMF slashes UK growth forecast but backs plans to cut deficit

The IMF has pushed Britain lower down the international growth league, slashing its estimates for growth and ramping its forecast for inflation – but also supporting the Coalition Government's "front-loaded" plans to reduce the budget deficit.

Conceding that the British downgrade is at least partly due to an unprecedented fiscal squeeze, the fund stated that this "necessary front-loaded fiscal consolidation dampens domestic demand". Additionally, the fund urged the Bank of England not to embark on any further loosening of monetary policy, which it regarded as "unnecessary, given current prospects for activity and developments". In practice, the next likely move in rates is upwards.

The British economy will grow by 1.75 per cent this year, the IMF now says, down from the 2 per cent projected in January, while prices will rise by 4.2 per cent – well over double the official inflation target, and a radically higher estimate than the last published figure for 2011 of 2.5 per cent. The IMF maintained its growth forecast for the UK for 2012 at 2. 3 per cent.

Fresh UK inflation numbers are released today, and are expected to rise further towards 5 per cent from February's 4.4 per cent. The IMF, meanwhile, expects UK unemployment will rise to 7.8 per cent of the workforce this year, about 100,000 more than the current headline figure of 2.5 million. That number is expected to climb higher when the official figures are published tomorrow. These may well also see youth unemployment breach the politically sensitive one million barrier.

Launching the fund's World Economic Outlook (WEO), the IMF's chief economist, Olivier Blanchard, implied that the Chancellor George Osborne was operating a sort of "Goldilocks" approach, with Mr Blanchard praising "smart fiscal consolidation that is neither too fast, which could kill growth, nor too slow, which would kill credibility".

The WEO concludes: "Securing public debt sustainability remains a priority for most European economies. Current fiscal consolidation plans are broadly appropriate and rightfully differentiated in the near term. In 2011, the largest economies in the region (France, Germany, Spain, UK) will implement differing measures (in size and composition) to reduce their deficits".

The fund joins the Organisation for Economic Co-operation and Development and other international bodies in broadly endorsing the Government's strategy, and offers little ammunition for the shadow Chancellor, Ed Balls, who has taken recent signs of faltering growth as evidence that the policies are "hurting but not working". Much now hangs on the UK's growth figures for the first quarter of this year, on 27 April.

More broadly, unemployment is emerging as a common challenge for all countries. "Overall, growth is insufficiently strong to make a major dent in high unemployment rates. Some 205 million people are still looking for jobs, which is up by about 30 million worldwide since 2007, according to the International Labour Organisation. The increase in unemployment has been very severe in advanced economies; in emerging and developing economies, high youth unemployment is a particular concern," the IMF said.

The "unbalanced" global recovery is simply summarised, said Mr Blanchard: the world economy will expand by 4.5 per cent per year in 2011 and 2012, but by only 2.5 per cent in the West and Japan, against 6.5 per cent in emerging and developing states.

In that context, the fund warned again that the "global imbalances" – principally America's yawning trade deficit with China – are not being reduced fast enough. Meanwhile, Portugal, Greece, Ireland and other distressed eurozone members would take "many years" to return to normal.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back