The IMF has slashed the UK’s growth forecasts for this year, saying uncertainty created by the Brexit referendum in June is already hurting the domestic economy.
The Fund’s chief economist, Maurice Obstfeld, also warned Brexit would cause “severe regional and global damage” by disrupting trade.
It is a major intervention from the IMF into the referendum debate. The IMF’s managing director Christine Lagarde has previously spoken about the negative economic impact of Brexit. But this is the first major warning from the Fund itself.
The IMF cut its 2016 GDP growth forecast for Britain to 1.9 per cent, down from the 2.2 per cent it projected in January. After Japan, it was the joint second largest downgrade handed out to any country in the G7.
The Fund said Brexit would reduce trade and financial flows and that negotiations on the UK’s post-EU future would be protracted and weigh heavily on confidence and investment. Taking in the narrow lead for the Remain campaign in opinion polls, Mr Obstfeld said that Brexit was a “real possibility”.
George Osborne said the report served as a serious warning against voting to leave the EU in the 23 June poll.
“The IMF has given us the clearest independent warning of the taste of bad things to come if Britain leaves the EU” he said. “If the British economy is hit by the mere risk of leaving the EU, can you imagine the hit to people’s income and jobs if we did actually leave?”
But Labour countered that the forecast also reflected the Chancellor’s mishandling the economy. “This is another major downgrading of growth forecasts for this already downgraded Chancellor” said the Shadow Chancellor John McDonnell.
He added: “It should act as a signal that George Osborne needs to change course and that Tory backbenchers who wildly scream for Brexit should think again.”
The IMF’s 2016 growth forecast is slightly weaker than the projection of the Office for Budget Responsibility in last month’s Budget which forecast growth of 2 per cent this year, down from the 2.3 per cent growth seen in 2015.
Leave campaigners dismissed the IMF’s warning. “The IMF has talked down the British economy in the past and now it is doing it again at the request of our own [finance minister]” said Matthew Elliott, chief executive of the Vote Leave campaign group. He said there was no strong evidence that the imminent vote had affected the UK’s economy.
The IMF’s forecast for UK growth in 2017 was unchanged on January’s forecast of 2.2 per cent.
As expected the IMF slashed its forecast for global growth to 3.2 per cent in 2016, down from 3.5 per cent in January, citing China’s slowdown and prolonged weakness in oil prices. It also downgraded its forecast for 2017 to 3.5 per cent, down from 3.6 per cent. Emerging markets are now seen as growing by 4.1 per cent this year, down from 4.3 per cent previously.
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