Brexit turbulence and pound's 31-year low causes UK economy to fall behind France

IMF rankings refute Theresa May's recent claim that the UK is the fifth-largest economy in the world

May Bulman
Wednesday 05 October 2016 17:06 BST
Brexit uncertainty will 'weigh on growth'

The UK has fallen below France in the global table of economic powers due to uncertainy over Brexit.

The latest World Economic Outlook report ranks the UK in eighth place weighting £1,932 billion, while France sits behind Germany in fourth with a weighting of €2,228 billion (£1,967 billion).

Suggestions that Britain will leave the single market and clamp down heavily on immigration have been blamed for pulling the rug from under the sterling, leaving it at a post-Brexit low of €1.14.

In the IMF's latest projections, UK growth is predicted to slow to 1.8 per cent this year and to 1.1 per cent in 2017, down from 2.2 percent last year. The slowdown is largely a result of the uncertainty following the Brexit referendum in June, which is expected to take a toll on investor confidence.

Meanwhile, the Eurozone is expected to expand 1.7 per cent this year and 1.5 per cent next year.

Maurice Obstfeld, IMF chief economist and economic counsellor, said: "The Brexit vote is an obvious development that we didn't expect a year ago. It's created a lot of uncertainty about the ultimate shape of creating relationships between the United Kingdom and the EU 27 and that uncertainty will probably weigh on growth."

It comes days after Prime Minister Theresa May claimed the UK would get a good deal with the EU because Britain was the fifth-largest economy in the world, a statement later echoed by both the Chancellor Philip Hammond and Foreign Secretary Boris Johnson.

While Mrs May's claim was technically accurate at the moment she made it - with sterling worth €1.16 at the end of last week - the latest forecasts show that Britain no longer occupies such an illustrious position.

In terms of gross domestic product per person, the IMF ranked Britain as only the 27th richest nation, with Qatar and Luxembourg taking the two top spots.

In terms of the global economy, the IMF predicted it will expand 3.1 per cent this year, unchanged from its July projection. Next year, growth will increase slightly to 3.4 per cent on the back of recoveries in major emerging market nations, including Russia and Brazil. These forecasts are below what they were in 2015.

Advanced economies will expand just 1.6 per cent in 2016, less than last year’s 2.1 per cent pace and down from the July forecast of 1.8 per cent.

The IMF said that its forecast reflects a more "subdued" outlook for advanced economies following Britain's vote in favour of leaving the EU and weaker-than-expected growth in the US, stating these developments have put "further downward pressure on global interest rates".

On the world economy, Mr Obstfeld said: “Taken as a whole, the world economy has moved sideways. We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world.”

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