Following the UK’s decision to leave the EU, the International Monetary Fund (IMF) has cut its forecast for the country’s economy.
Prior to the EU Referendum the IMF had predicted that the UK economy would grow by 2.2% in 2017, but now, describing the UK’s Brexit vote as having thrown a “spanner in the works” it has downgraded its forecast to 1.3% - 0.9 percentage points lower than the estimate made in its World Economic Outlook in April.
The fund, which had warned of a devastating recession if the UK were to vote to leave the EU, has said that the Brexit vote has hindered the country’s short-term economic prospects.
But while the IMF predicts that the UK economy will grow by 1.3%, it has said that other economies in Europe will only grow by 1.2%. And it has warned that the Brexit decision poses broader risks to a world economy struggling with slow post-financial crisis growth and a fragile European banking system.
Strongly advising policymakers in the UK and the rest of the EU to end uncertainty, the fund said:
“Of primary importance is a smooth and predictable transition to a new set of post-exit trading and financial relationships that as much as possible preserves gains from trade between the UK and the EU.”
Maury Obstfeld, the IMF’s economic counsellor, said: “The first half of 2016 revealed some promising signs – stronger than expected growth in the euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies.
“As of 22 June, we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works.”
“The direct effects specifically due to Brexit are greatest in Europe, especially the United Kingdom.”
The latest forecasts from the IMF are based on the assumption that the UK will reach a trading agreement similar to that enjoyed by the EU and Norway, implying that Britain would continue to operate within the European single market.
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