UK economic growth for 2019 downgraded by IMF amid Brexit uncertainty

In its latest forecast, the Fund projects growth for Britain of 1.5 per cent next year, down from 1.6 per cent previously

Ben Chu
Economics Editor
Monday 22 January 2018 15:02
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'The current upturn, however welcome, is unlikely to become a new normal,' said Maurice Obstfeld, the IMF's chief economist
'The current upturn, however welcome, is unlikely to become a new normal,' said Maurice Obstfeld, the IMF's chief economist

The International Monetary Fund has downgraded its outlook for UK growth for 2019, the year of Brexit, while much of the rest of the G7 have been upgraded on the back of a strengthening global economy.

In its latest forecast, the IMF projects growth for Britain of 1.5 per cent next year, down from 1.6 per cent previously.

The UK is set to leave the European Union on 29 March 2019.

In contrast with the UK downgrade, the US outlook for 2019 is upgraded from 1.9 per cent to 2.5 per cent, Germany from 1.5 per cent to 2 per cent and Canada from 1.7 per cent to 2 per cent.

The IMF’s UK forecast for 2018 is unchanged at 1.8 per cent.

But forecast growth for the US, Germany, France, Italy and Japan are all pushed upwards this year as global growth is seen hitting 3.9 per cent, the most rapid since the 4.2 per cent expansion in 2011.

“The revision reflects increased global growth momentum and the expected impact of the recently approved US tax policy changes,” the IMF says in its latest World Economic Outlook update, referencing the corporation tax cuts pushed through the US Congress late last year.

IMF

However, the IMF now expects UK GDP growth in 2017 to have come in at 1.7 per cent, slightly higher than the 1.6 per cent it pencilled in last month when it delivered its annual “Article IV” health check on the UK economy.

At that time the IMF’s director general, Christine Lagarde, said that the UK’s economic performance since the Brexit vote in June 2016 had vindicated her organisation’s pre-referendum warnings.

The Office for National Statistics will reveal its preliminary estimate for growth in the final quarter of 2017, and also the full calendar year, on Friday.

“As the year 2018 begins, the world economy is gathering speed,” wrote the IMF’s chief economist, Maurice Obstfeld, in a blog on Monday.

“This is good news. But political leaders and policy makers must stay mindful that the present economic momentum reflects a confluence of factors that is unlikely to last for long,” he added, arguing that Donald Trump’s tax cuts were likely to only provide a short-term boost to growth.

“Without prompt action to address structural growth impediments, enhance the inclusiveness of growth, and build policy buffers and resilience, the next downturn will come sooner and be harder to fight ... Our view is that the current upturn, however welcome, is unlikely to become a ‘new normal’ and faces medium-term downside hazards that likely will grow over time.”

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