IMF takes axe to UK growth forecasts and warns of global outlook risks

Lender sees just 0.2 per cent UK growth in 2012 and urges action from eurozone

The International Monetary Fund yesterday handed the UK a bigger growth forecast downgrade than any other advanced nation and warned the global economy remains in a "precarious" state.

The international lender of last resort said that the British economy will grow by just 0.2 per cent in 2012, down from the 0.8 per cent it was expecting in April. The 0.6 per cent downgrade is the largest experienced by any advanced economy in the IMF's regular World Economic Outlook.

Even the outlook for the two recession-hit eurozone nations, Spain and Italy, has not deteriorated so badly over the past three months, according to the IMF. Spain's outlook has been upgraded from a 1.8 per cent contraction to a 1.4 per cent fall. The forecast for Italy is unchanged at a 1.9 per cent decline.

The US economy is expected to grow by 2 per cent, down from 2.1 per cent seen in April. Germany is seen as growing by 1 per cent, rather than 0.4 per cent.

The IMF sees China growing by 8 per cent in 2012, down from 8.2 per cent.

For the global economy as a whole, the IMF, led by Christine Lagarde, sees growth of 3.5 per cent. Despite the host of downgrades, this is more or less the same as in April because growth in the first quarter of the year turned out stronger than expected.

However, the IMF warned that the global economy could easily turn out significantly weaker if policymakers in Europe failed to tackle the eurozone sovereign debt crisis and US politicians do not prevent automatic spending cuts kicking in next year. "Downside risks continue to loom large … reflecting risks of delayed or insufficient policy action," it said.

The substantial downgrade for the UK increases the pressure on George Osborne because the IMF argued last September that nations with low borrowing costs, including the UK, should slow their pace of fiscal consolidation if growth fell short.

But Carlo Cottarelli, the director of the IMF's fiscal affairs department, said yesterday that the UK should not change course on deficit reduction. "There is already a slowing down of the pace of the adjustment this year in the UK," he said. He added that looser monetary policy should first be given a chance to stimulate the economy. This month the Bank of England announced a further £50bn of quantitative easing and unveiled an £80bn scheme to push down the borrowing costs of banks. The IMF also said the Government's deficit reduction timetable is being thrown off course by weak growth. It says that the UK's deficit will fall to 8.1 per cent in 2012, rather than the 7.9 per cent it expected three months ago.

The Government's official watchdog, the Office for Budget Responsibility, in March predicted 0.8 per cent growth for the UK over 2012, followed by 2 per cent in 2013.

On the eurozone, the IMF said that the European Central Bank should reconsider the reactivation of its €210bn (£165bn) sovereign bond buying programme. It also said that eurozone nations should be allowed to run temporary larger deficits in response to recession. The 17-member eurozone economy is expected by the IMF to contract by 0.3 per cent this year, before expanding by 0.7 per cent next year.

Start your day with The Independent, sign up for daily news emails
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
News
Robert De Niro has walked off the set of Edge of Darkness
news The Godfather Part II actor has an estimated wealth of over $200m
Arts and Entertainment
Fearne Cotton is leaving Radio 1 after a decade
radio The popular DJ is leaving for 'family and new adventures'
Sport
Robbie Savage will not face a driving ban
football
Voices
voices
Life and Style
Nearly half of all young people in middle and high income countries were putting themselves at risk of tinnitus and, in extreme cases, irreversible hearing loss
health Nearly half of all young people in middle and high income countries are at risk of tinnitus
News
It was only when he left his post Tony Blair's director of communications that Alastair Campbell has published books
people The most notorious spin doctor in UK politics has reinvented himself
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
arts + ents
Life and Style
fashion
Arts and Entertainment
James Franco and Zachary Quinto in ‘I Am Michael’
filmJustin Kelly's latest film tells the story of a man who 'healed' his homosexuality and turned to God
News
i100
Arts and Entertainment
Public Service Broadcasting are going it alone
music
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower