x

Abu Dhabi, UAEThursday 21 June 2018

IMF slashes UK growth forecasts amid Brexit uncertainty

Christine Lagarde, head of the International Monetary Fund, said Britain's economy is already suffering from last year's vote to leave the European Union

Christine Lagarde, managing director of the International Monetary Fund, defended the IMF's gloomy predictions about the impact of Brexit, saying the economy’s slowdown over the past year shows those warnings were correct.  EPA/LUKE MacGREGOR
Christine Lagarde, managing director of the International Monetary Fund, defended the IMF's gloomy predictions about the impact of Brexit, saying the economy’s slowdown over the past year shows those warnings were correct. EPA/LUKE MacGREGOR

The International Monetary Fund has slashed its growth forecasts for the UK, blaming Brexit uncertainty.

The IMF said Britain's economy was set to grow by around 1.6 per cent this year, reduced from its previous estimate of 1.7 per cent. Next year, growth will continue to slow down to 1.5 per cent, which is below that of many other advanced economies.

IMF chief Christine Lagarde said Britain's economy is already suffering from last year's vote to leave the European Union - fulfilling previous warnings that Brexit supporters had dismissed as too gloomy.

Before the June 2016 referendum, Ms Lagarde had said Brexit would have "pretty bad to very, very bad" consequences for Britain, angering Brexit backers who viewed the body as exceeding the limits of its expertise.

Speaking in London as she presented the IMF's first full assessment of Britain's economic performance since the Brexit vote, Ms Lagarde said British growth was "a bit of a disappointment" compared to strength elsewhere in the world.

"The UK economy is already losing out as a result of this decision," she said at a news conference alongside Chancellor Philip Hammond.

_______________

Read more:

British firms fear fate worse than Brexit

RBS, Lloyd's of London say Brexit breakthrough won't change Brussels subsidiary plans

_______________

"That narrative we identified as a potential risk in May 2016 is actually being rolled out as we speak. It's not experts talking - it is the economy demonstrating that," Ms Lagarde said.

Firms were delaying investment until they had more clarity about future trade rules, and she urged Britain and the EU to reach a deal soon on transitional arrangements for March 2019.

In its report on Britain's economy, the IMF said Britain may need to raise more money from taxes to bring down its budget deficit after relying heavily on squeezing public spending.

"Deficit reduction since the financial crisis has relied mostly on spending measures," the IMF said.

"While the government should continue to seek the best value for money in public spending, a more balanced approach to deficit reduction may be called for in future," it said.

The impact of Brexit on the economy and Britain's low productivity growth could hit tax revenues, while demands on public spending would increase as the country's population grows older.

"Under these circumstances, greater reliance on revenue measures for consolidation [of the budget] than in recent years may be warranted," the report said.

Mr Hammond said he shared the IMF's concerns about Britain's high levels of public debt.

The report also welcomed recent progress in the Brexit talks with Brussels but said the time-frame for negotiating a new trade deal was ambitious.