THE UK ECONOMY will grow much more slowly than was forecast just three months ago, the International Monetary Fund (IMF) warned yesterday, hampering efforts to bring down the huge budget deficit.
The rapid worsening of the debt crisis in the Eurozone was largely to blame, although the IMF also warned in its global update that the US must avoid letting tax breaks and spending projects expire this year.
But the IMF saved its most dramatic outlook cuts for the UK.
GDP is now expected to grow by just 0.2 per cent this year – down sharply from April’s forecast of 0.8 per cent and last June’s prediction of 2.3 per cent. Growth in 2013 is set to reach 1.4 per cent, down 0.6 percentage points from April’s prediction.
That compares with US growth of two per cent in 2012 and 2.3 per cent in 2013, each down 0.1 percentage point on the previous outlook.
As a result the IMF now expects the UK’s budget deficit to come in at 8.1 per cent of GDP, worse than the 7.9 per cent predicted in April.
Meanwhile Germany’s outlook has been upgraded – the IMF expects its GDP to expand by one per cent this year, up 0.4 percentage points on the previous forecast.
The IMF also argued only a real resolution to the Eurozone crisis would lift global growth, calling for a full banking union and sustained reforms to the peripheral economies.
The IMF also trimmed its outlook for France by 0.1 percentage point, and now expects economy to contract 0.3 per cent in 2012. It has also approved Portugal’s latest €1.48bn tranche of loans linked to its bailout.