The UK's could lose one percentage point of growth in 2017
The IMF’s chief economist says that Britain’s vote to leave the EU has ‘thrown a spanner’ of the global recovery.
After the global economy performed better than expected at the beginning of 2016, the fund has today slashed growth forecasts for the UK and the world, blaming the referendum result for ‘a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences.’
This is consistent with the IMF’s pre-Brexit prediction that a Leave vote would could trigger ‘a protracted period of heightened uncertainty’ and cause long-term damage across economic sectors.
The UK will be the worst affected country, with other advanced European economies also suffering severe effects.
Britain’s growth forecast for 2016 has been cut by 0.2 percentage points and, looking forward to 2017, the IMF warns a one percentage point fall in growth.
Additionally, the report makes clear that this is a baseline assumption, and that a number of factors could make the effects worse.
For example, predictions are based on the ‘benign assumption’ that there will not be a significant increase in the trade barriers existing between the UK and the EU. If Brexit negotiations do not achieve this, ‘more negative outcomes are a distinct possibility.’
Additionally, prolonged negotiations between the EU and UK could, the report warns, have further negative impacts on global growth.
A Treasury spokesperson responded to the IMF forecast, saying that ‘we are the same, outward-looking, globally-minded, big-thinking country we have always been’.
“As the Chancellor has said, our absolute priority is to send a clear signal to businesses both here and across the world, that we are open for business and determined to keep Britain and attractive destination for investors from overseas.”
The Resolution Foundation has responded to the report by emphasising that a decrease in growth presents a huge challenge to the new chancellor, particularly as a decline in growth will decrease the tax take.
Its chief economist, Matt Whitaker, commented:
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“With living standards still showing the effects of the 2008 financial crisis, any reduction in growth in will have profound implications for Britain’s households. Those on low to middle incomes face the double hit of slower wage growth and a tighter benefit squeeze in the face of an inflation spike.
“The precise scale of the Brexit fall-out remains highly uncertain at this stage – especially over the longer-term – but it’s clear that the government will need to put those on low and middle incomes at the heart of its response if is to achieve the new Prime Minister’s mission of ensuring that Britain is a ‘country that works for everyone’.”