Downgrades UK growth forecast
In its annual report today, the International Monetary Fund (IMF) has said that Britain’s vote to leave the EU is already damaging the UK despite a strong recovery in the world economy, and warned that losses in tax revenues could exceed any gains from ceasing net contributions to Brussels.
The IMF expects growth of 1.6 per cent this year, down slightly from its previous forecast of 1.7 per cent. It expects growth to slow further next year, to 1.5 per cent.
The head of the IMF, Christine Lagarde, said the Brexit referendum result and the decision to invoke Article 50 “are already having an impact on the economy even though the UK is not planning to leave the EU until 2019.”
The report highlighted the negative currency effects on the domestic economy in the form of higher consumer price inflation, saying it had squeezed household budgets and spending.
Lagarde added: “We feared that if Brexit was decided upon, it would most likely entail a depreciation of sterling, an increase in inflation, a squeezing in wages and a slowdown and a reduction of investment.”
At a Treasury news conference, Lagarde said it expected output to remain broadly stable in 2018: “What we are seeing is that that narrative we identified as a potential risk is being rolled out as we speak. It’s not experts talking, it’s the economy saying that. Our forecast is 1.6 [per cent GDP growth] this year and 1.5 next year, which relative to the upward revisions we are advocating for other advanced economies is a bit of a disappointment.”
The report added: “Firms are likely to continue deferring some investment decisions until there is greater clarity on the UK’s future trading relationship with the European Union”.