UK will do twice as well as we thought, says IMF
THERESA May was handed a surprise election boost by the International Monetary Fund after it sharply raised its growth forecasts for Brexit Britain.
The global watchdog, which backed remaining in the EU before the referendum, said it now expects the UK economy to grow by 2 per cent this year.
That is up from the 1.1 per cent it forecast in October and the 1.5 per cent predicted as recently as January.
The upward revision is a humiliating reversal after the IMF’s intervention in the referendum campaign last year when managing director Christine Lagarde said Brexit would have ‘pretty bad to very, very bad consequences’ and could lead to recession.
Instead, Britain has continued to be one of the strongest major economies in the developed world.
The upbeat projections from the IMF could not have come at better time for the Prime Minister and the Tories as they kick-off the election campaign.
The IMF was desperate last night not to become the political football they became last year as a result of the com- bined efforts of then Chancellor George Osborne and Mrs Lagarde who backed Remain with great gusto, undermining its independence.
‘I think it’s up to the British government to decide if they need a renewed mandate to undertake the difficult and complicated negotiations on Brexit,’ the IMF’s chief economist Maurice Obstfeld told a Washington press conference. ‘It’s up to the British people to determine what that mandate will be.’
he warned, however, that holding another election so soon after the referendum was not helpful. ‘Uncertainty is not good,’ he said. ‘There was already uncertainty over how the negotiations would go and what its final outlines would be.’
he argued that the vote may cause nervousness between now and the election which could harm economic growth.
‘This may present a trade-off between more uncertainty before June 8 for a little less uncertainty later,’ he suggested in what was seen as an endorsement for Mrs May’s strategy of boosting her negotiating hand with Brussels.
The IMF, which rarely admits its mistakes, acknowledged it had been wrong-footed on the impact of a Brexit vote on the UK’s economic prospects. ‘The resilience of the recovery surprised us,’ a leading official said.
he did, however, caution that Britain’s strong consumer recovery, based upon credit, could eventually lead to a slowdown. The IMF’s forecast for 2018 is that the recovery will slow, with growth dropping to 1.5 per cent. Nevertheless, that projection is still stronger than the one in January.
The 2017 forecast, drawn up before yesterday’s announcement of a snap election, shows that the UK is expected be the second fastest growing nation in the G7 this year, behind the US. Chancellor Philip hammond said: ‘The fundamentals of our economy are strong and we continue to invest in the skills needed for a stronger and fairer Britain.’
Sterling soared against the dollar and the euro yesterday as investors bet on a thumping Conservative victory in the election.
But shares in London suffered their biggest fall since the sell-off that followed the Brexit vote last June, wiping £46billion from the value of Britain’s top companies.
On a volatile day on the financial markets, the pound rose as much as 3 per cent against the dollar to over $1.29, its strongest level since September. It also gained more than 2 per cent against the euro, climbing above €1.20 to its highest since December. The FTSe 100 index closed down 2.5 per cent, or 180.09 points, at 7147.50.
‘Resilient economy has surprised us’