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IMF Cuts UK Growth Forecast

by Amanda Banks,, London

13 July 2010

Despite predicting improvements in the global economy in general, the International Monetary Fund (IMF) has cut Britain’s growth forecasts to below those set out by the Chancellor, George Osborne. The revised IMF figures come in the wake of the coalition government’s announcement of severe cuts in spending and concern in some areas of business of the danger of a ‘double dip’ recession.

The IMF revised down the UK’s growth figure for 2010 to 1.2%, although this is now in line with the UK government’s own forecast. However, the IMF is now forecasting growth of only 2.1% for 2011 – down from 2.5%, and 0.2% less than the figure issued by the Office of Budget Responsibility, the Chancellor’s newly formed independent body.

The IMF’s gloomy picture of the UK economy contrasts with its forecasts for the global economy. Growth for 2010 is now forecast to be 4.6% (a rise of 0.4% from its previous forecast) and 4.3% in 2011. The economic picture for the Eurozone is gloomier than other parts of the world – the IMF forecasts significant growth in China and India, for example.

Although underlying trends are encouraging, with figures released by the Office for National Statistics last week showing that manufacturing growth and economic output are the strongest since the recession began, the IMF downgrade of the UK’s growth prospects and a warning issued by the National Institute of Economic and Social Research (NIESR), highlight the fragile state of the country’s economy, with the effects of the Chancellor’s cuts yet to be felt.

The IMF’s Chief Economist, Olivier Blanchard, said: “While we predict the recovery will continue, it is clear that downside risks have risen sharply." He went on: "While we remain cautiously optimistic about the pace of recovery, there are clearly dangers ahead. How Europe deals with fiscal and financial problems, how advanced countries proceed with fiscal consolidation, and how emerging markets rebalance their economies, will determine the outcome."

TAGS: economics | fiscal policy | International Monetary Fund (IMF) | United Kingdom

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