IMF cuts UK growth forecast as economy worsens
The IMF cut will add pressure on the coaltion to abandon its deficit-reduction plan.
By CFOWorld staff | CFO UK | Published 15:54, 16 July 12
The International Monetary Fund cut its British growth forecasts for this year and next year, saying that the UK’s outlook had deteriorated more in the past quarter than that of any other industrialised nation.
In a quarterly update to its World Economic Outlook, the IMF cut its growth forecasts for Britain by 0.6 percentage points each, to just 0.2 percent and 1.4 percent respectively - well below the forecasts published by the Office for Budget Responsibility.
The cut will add pressure to the coalition government to abandon its deficit reduction plan, although the IMF did not say whether it was now time for the government to temporarily ditch its plan.
In the past few days the government has made a series of announcements that it hopes will boost growth. On Friday, the Bank of England and the Treasury said it would make around £80 billion pounds of cheap credit available to help banks sustain lending to households and businesses, while on Monday it announced a £9.4 billion investment in long-term rail infrastructure.
The sharp downgrade chimes with other economists' darkening assessments and raises questions whether a recent flurry of government measures to stimulate growth will be enough, or if it will have to ease back further on its fiscal austerity plans.
By contrast, the IMF's 2012 growth forecast for advanced economies as a whole is unchanged at 1.4 percent and for 2013 it has been cut by just 0.2 percent to 1.9 percent.
Britain's economy entered its second recession in four years at the end of last year as it struggles to recover from the effects of the financial crisis.
Earlier this month the Bank of England said it would inject an extra £50 billion into the economy, its third round of monetary stimulus taking the total to £375 billion.
The IMF did not say why it had specifically downgraded Britain's outlook so sharply, though in a general comment about non-euro zone advanced economies, it said the euro zone debt crisis was mainly to blame. This is also the view of the BoE and Britain's government, although government efforts to reduce public spending are weighing on demand too.
The IMF said slower growth would limit the pace at which the government could reduce its budget deficit this year and next, predicting it would total 7.1 percent of GDP next year, rather than the 6.6 percent it forecast three months ago.
"(This) is fitting given the weak growth outlook," it said. "The government has appropriately maintained its commitments to balance the structural current budget within five years ... with additional consolidation in store in 2015-17."
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