IMF cuts growth forecast for UK over Brexit fears

International Monetary Fund managing director Christine Lagarde
EPA
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Economists at the IMF today slashed their forecasts for Britain’s growth over fears of the “severe damage” that could be inflicted by a Brexit vote.

They said GDP will rise by only 1.9 per cent in 2016 compared with their previous projection of 2.2 per cent published as recently as January.

The downgrade will be seized on by Remain campaigners as evidence of the huge disruption likely to follow the June 23 referendum if a majority vote to quit Brussels.

It came as the annual rate of inflation jumped more than expected to 0.5 per cent in March, the highest since December 2014.

The latest edition of the IMF’s World Economic Outlook warned of an “extended period of heightened uncertainty” that could hit consumer confidence, investment and the City.

It added: “The planned June referendum on European Union membership has already created uncertainty for investors; a ‘Brexit’ could do severe regional and global damage by disrupting established trading relationships.”

If the IMF forecasters are correct the “Brexit bump” will be responsible for knocking more than £6 billion off economic output this year, or around £100 for every man, woman and child in Britain.

The IMF analysis suggests “a British exit from the European Union could pose major challenges for both the United Kingdom and rest of Europe.

“Negotiations on post-exit arrangements would likely be protracted, resulting in an extended period of heightened uncertainty that could weigh heavily on confidence and investment, all the while increasing financial market volatility.

“A UK exit from Europe’s single market would also likely disrupt and reduce mutual trade and financial flows, curtailing key benefits from economic cooperation and integration.”

The IMF’s figure is slightly lower than the 2 per cent “official” forecast from the independent Office for Budget Responsibility revealed by George Osborne in last month’s Budget.

The unexpectedly strong rise in the Consumer Prices Index — the government measure of inflation — was largely due to an early Easter, which sent air fares soaring 22.9 per cent last year.

There was also an impact from restaurant and cafe prices rising and higher clothes and shoe prices, although this was offset by a 3 per cent fall in food prices. The overall rate of inflation is still well below the Bank of England’s 2 per cent target.

Government statistician Phil Gooding said: “After an unprecedented period of CPI being close to zero, inflation has begun to rise again. Dearer clothing and higher air fares, influenced by the timing of Easter, are behind the rise in CPI, which is still low by historic standards.”

Ian Stewart, chief economist at Deloitte, said: “With inflation running at a quarter of its target rate, and with economic uncertainty rife, the Bank is miles away from raising rates. The Bank’s big problem is sustaining growth and getting inflation up.

“Inflation may have bottomed, but the mounting risks in the global economy, and the continued risk of deflation, means that interest rates are likely to stay on hold until next year.”

Shadow chancellor John McDonnell said: “[This] should act as a signal that George Osborne needs to change course and Tory backbenchers who scream for a Brexit should think again.

As these figures suggest it’s the uncertainty facing the UK from the risk of leaving the EU coupled with a Chancellor who can’t meet his fiscal targets that has led to such a concerning announcement.”

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