IMF upgrades UK growth forecast yet again

Jasper Jolly
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Buds on a cherry tree are seen on April
The IMF says more green shots are visible in the UK economy (Source: Getty)

The International Monetary Fund (IMF) has raised its forecasts for the British economy this year for the second time in a row, as the strength of consumer spending continues to feed into stronger growth.

The UK economy will expand by two per cent this year, the IMF predicted in its World Economic Outlook.

This is 0.5 percentage points higher than the 1.5 per cent growth predicted in January and 0.9 points higher than the GDP growth predicted in October.

Read more: IMF "encouraged" by strong UK growth, Christine Lagarde says

The IMF said: "Growth remained solid in the United Kingdom, where spending proved resilient in the aftermath of the June 2016 referendum in favour of leaving the European Union."

This means the UK economy will grow faster than the other advanced economies in the G7 group apart from the United States, where GDP is expected to grow by 2.3 per cent.

The IMF downgraded its predictions for UK GDP growth in the wake of the Brexit vote, but has since steadily moved its forecast back up as economic data has shown little short-term effect to the real economy other than the steep drop in the value of sterling.

The UK has also been aided by a better outlook for the world economy. The IMF has raised its predictions of global growth, with stronger momentum from the second half of last year carrying through to 2017.

Read more: Christine Lagarde hits back at criticism of IMF's Brexit warnings

Improving economic conditions in Europe and Asia drove most of the forecast upgrade, the IMF said, with world GDP growth upgraded by 0.1 percentage points to 3.5 per cent.

Maurice Obstfeld, director of the research department at the IMF, said: "Momentum in the global economy has been building since the middle of last year."

This growth was threatened, he warned, by the rise in protectionism, despite the more powerful momentum.

He said: "A broad withdrawal from multilateralism could lead to such self-inflicted wounds as widespread protectionism or a competitive race to the bottom in financial oversight – a struggle of each against all that would leave all countries worse off."

Read more: IMF warns outlook for world economy has worsened following Brexit vote

However, the IMF did not describe the UK's decision to leave the EU in the same terms, saying the negotiations over the future relationship would not do significant harm to trade, although it did say uncertainty may weigh on activity and harm the medium-term growth prospects of the British economy.

The IMF said: "Negotiations on the future economic relations between the United Kingdom and the European Union are assumed to proceed without raising excessive uncertainty, and the arrangements are expected to eventually settle in a manner that avoids a very large increase in economic barriers."

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