The International Monetary Fund has cut its growth forecast for the UK economy in 2017, its first downgrade since the immediate aftermath of the Brexit vote last year.
In an update to its World Economic Outlook, the IMF said annual GDP would expand 1.7 per cent this year, compared to a forecast of 2 per cent growth made in April. The 2018 forecast was unchanged at 1.5 per cent.
Having warned of an immediate hit to the UK economy following last June’s referendum result, the IMF was forced to change course on its outlook on the British economy – reversing almost all of its initial post-referendum downgrades from October as evidence showed consumer spending was propping up growth.
But rising inflation, stoked by the weaker pound, is pinching household spending in 2017 as Brexit negotiations have kicked off.
The Washington-based fund warned the UK’s negotiations over its “post-Brexit arrangements” were one of the policy uncertainties posing a risk to the medium-term outlook for the world economy.
“The ultimate impact of Brexit on the United Kingdom remains unclear”, said Maurice Obstfeld, the IMF economic counsellor.
The 0.3 percentage point cut for the UK was the biggest downgrade of any advanced economy, as the IMF kept its global forecast unchanged at 3.5 per cent. Forecasts for the eurozone were raised from 1.7 per cent to 1.9 per cent this year as the single currency area’s recovery has picked up momentum this year.
The UK Treasury said the growth cut “underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU, are vitally important”.
UK economists will be keeping a close eye on the latest quarterly GDP figures out this week for signs of a rebound in activity after growth slumped to a 0.2 per cent pace in the three months to the end of March. That marked a sharp slowdown from the 0.7 per cent pace recorded at the end of 2016.
The IMF’s new forecast is just below that of the Bank of England’s which expect the UK to expand by 1.9 per cent this year.