The International Monetary Fund has delivered another hike to its UK growth forecast, reversing nearly all of the downgrade it pencilled in after last summer’s Brexit vote.
In its latest assessment of prospects for global growth, the Washington-based fund predicted the UK economy will grow by 2 per cent this year, an increase of 0.5 percentage points from the forecast it made in January. The IMF also upgraded its UK growth forecast for next year, from 1.4 per cent to 1.5 per cent.
The world economy will grow faster than previously expected this year thanks to increased trade, investment and manufacturing said the IMF.
In 2017, global growth was revised from 3.4 per cent to 3.5 per cent, marking the first time in six years the IMF has revised up previous expectations for short-term global growth.
The revision came primarily due to better than expected economic news from Europe, China and Japan and a broad-based recovery in global manufacturing since the middle of 2016.
However the fund also warned rising protectionist policies and structural problems — such as low productivity and high income inequality — meant “the balance of risks remains tilted to the downside”.
Before the UK’s EU referendum last year, the IMF forecast the UK economy would grow 2.2 per cent in 2017. But it cut the projection to 1.3 per cent last July, weeks after the Brexit vote, and downgraded its forecast further, to 1.1 per cent, in October.
However, UK economic growth proved more resilient in the second half of last year than the IMF and many other forecasters had predicted, with output growing 0.5 per cent in the third quarter, and 0.7 per cent in the fourth quarter.
The latest IMF figures match those from the Office for Budget Responsibility, the UK government’s fiscal watchdog. They were made before today’s decision by prime minister Theresa May to hold a general election on June 8.
Data available so far for 2017 suggest growth slowed to around 0.5 per cent in the first quarter of this year. If that figure proves to be correct, quarterly growth over the remainder of the year would need to average 0.4 per cent to hit the IMF’s forecast.
Brexiters are likely to seize on the new IMF forecast as further evidence that economists who warned that a Leave vote would harm the UK economy have been proven wrong.
However, the IMF, like many other forecasters, continues to argue the Brexit vote will reduce Britain’s economic growth in the longer term.
The IMF said on Tuesday that Britain’s “medium-term growth prospects have … diminished in the aftermath of the Brexit vote because of the expected increase in barriers to trade and migration”.
The IMF predicted that investment and hiring will start to slow as the “salience of a future increase in trade costs will likely dampen expectations of future real earnings”, while there could be a “downsizing of the financial services sector amid possible barriers to cross-border financial activity”.