IMF predicts UK growth is slowing as Europe picks up pace

Britain was expected to outpace the eurozone but saw the largest downgrade of any advanced economy

Chancellor of the Exchequer Philip Hammond
(Image credit: Roger Bosch / Stringer)

The UK's economic growth will be significantly slower than expected this year after a sluggish start, according to the International Monetary Fund (IMF).

UK GDP had been expected to expand by two per cent this year, but in the latest update to forecasts for the global economy, the IMF has downgraded that prediction by 0.3 per cent to 1.7 per cent.

That's the first downgrade from the IMF for the UK economy "since the immediate aftermath of the Brexit vote last year", says the Financial Times, and also "the biggest downgrade of any advanced economy".

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UK growth came in at just 0.2 per cent for the first quarter, less than a third of the rate at the end of last year, as the services sector slowed markedly.

Elsewhere the estimate for US growth was also downgraded from 2.3 per cent to 2.1 per cent, which the IMF said reflected an "assumption that fiscal policy will be less expansionary than previously assumed".

Donald Trump had pledged up to $1trn in new infrastructure spending and a massive programme of tax cuts, but recent defeats in Congress on his headline policy to repeal Obamacare suggests he will struggle to get these through.

Despite these downward revisions, the optimistic overall prediction of a pick-up in global growth this year to 3.5 per cent remains unchanged.

As UK and US fortunes wane, the IMF believes Europe is on the up. Spain and Italy saw their growth projections raised from 2.6 and 0.8 per cent to 3.1 and 1.3 per cent respectively.

As a whole the eurozone is now expected to expand by 1.9 per cent this year, up from 1.7 per cent. If true it will mean the eurozone will outpace the UK economy.

UK growth could yet surprise on the upside, however. Rising inflation had been thought to be reducing consumer spending, but official figures last week suggest retail sales grew in both June and the second quarter.

Paul Hollingsworth, UK economist at Capital Economics, told the FT the figures showed that "recent talk of a marked consumer slowdown has been overdone” and that the economy would regain momentum in the second quarter.

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