IMF cuts UK and US growth forecasts, global growth to remain healthy

The International Monetary Fund has cut its growth forecast for the UK and US economies after soft performances in the first quarter of the year.

Releasing its report overnight, the IMF said it expected the British economy to grow just 1.7% in 2017, down from an initial forecast in April of 2.0%.

Maurice Obstfeld, economic counsellor at the IMF, stated the growth forecast had been lowered based on a "tepid performance" early on in 2017, adding that Brexit's ultimate impact on the UK "remains unclear."

IMF predictions had been raised in the months after the Brexit vote as activity was stronger than anticipated but data has weakened since and the IMF said further breakdowns in Brexit negotiations could lead to a wider failure in the global economy.

For 2018, the IMF left its UK forecast unchanged at 1.5%.

The rest of the EU saw much more encouraging results with Germany having been revised up 0.2% to 1.8%, France up 0.1% to 1.5%, and Italy (1.3%) and Spain (3.1%) both seeing increases of 0.5%.

But the most notable cut by the IMF was of its US forecast to 2.1% this year and next from 2.3% and 2.5% respectively.

Uncertainty over President Donald Trump’s administration policies was one driver for the IMF to revise down its US growth outlook and “because near term US fiscal policy looks less likely to be expansionary” than had been expected in April, amid concerns over low inflation weighing on the interest rate.

From a global growth perspective, "the most important downgrade is the United States”, Obstfeld said, noting that President Trump's inability to deliver on his tax cuts package had discouraged private investment and hindered US growth prospects.

Global growth forecasts were left unchanged at 3.5% for 2017 and 3.6% for next year, with the report stating that stronger than expected performances in the Eurozone, China and Japan would be likely to offset more sluggish performances around the globe.

Obstfeld was increasingly confident that “the recovery in global growth is on a firmer footing….there is now no question mark over the world economy's gain in momentum".