The IMF has downgraded UK growth expectations, saying Brexit creates a “key uncertainty”
The International Monetary Fund (IMF) has downgraded expectations for UK GDP growth this year, saying developments in Brexit negotiations remaining a “key uncertainty” for the economy as it stuck by its previous economic forecasts.
Speaking at the Treasury today, Christine Lagarde, head of the IMF, said the UK economy “is losing out as a result” of the Brexit vote.
In a statement this morning, the organisation said GDP growth will hit 1.6 per cent this year, down from the 1.7 per cent it had originally expected, and will “remain around one and a half per cent next year”, with inflation gradually falling from last month’s peak of 3.1 per cent.
In October the IMF downgraded its expectations for UK growth from two per cent to 1.7 per cent.
The experts fight back
Lagarde also strongly defended pre-Brexit economic predictions which led current environment secretary Michael Gove to say Britain had “had enough of experts”. At the same annual health check on the UK economy, last delivered in May 2016, the IMF had predicted a possible recession if Britain voted to leave the EU.
The IMF’s economic forecasts had been a “little bit too gloomy”, Lagarde admitted, but she insisted the IMF’s “narrative” at the time – including a sterling devaluation, weak investment, and lower consumer spending – had come true.
“We were pretty much on the mark,” Lagarde said. “Our forecast turned out to be the reality of the economy.”
The organisation said Brexit has the potential to “reshape” the economy, with changes to trade, regulations and the labour market affecting the futures of agriculture, manufacturing and services.
Transition call
Lagarde repeated the IMF’s call for an “agreement that minimises trade barriers”, while welcoming recent progress in the Brexit negotiations.
While Prime Minister Theresa May last week secured an agreement on the first phase of Brexit negotiations, Lagarde said businesses need progress imminently on a transitional arrangement to allow them to plan ahead.
She said: “The later there is clarity, the more likely people will decide contingency plans,” she said.
The IMF highlighted the plight of the financial services sector, which makes up seven per cent of GDP and accounts for 10 per cent of tax revenues and 14 per cent of exports.
“[The sector] may be particularly affected in the absence of an agreement that allows the majority of EU-facing financial services currently provided from the UK to remain there,” it said.
A breakdown in Brexit negotiations was among the biggest risks to economic growth, along with a decline in liquidity in the corporate bond market, high valuations of commercial real estate and housing and lower household savings rate, the IMF said.
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