International Monetary Fund downgrades United Kingdom growth forecast as 'gloomy' Brexit forecasts are borne out

Brexit news IMF Christine Lagarde

However, it stood by previous forecasts for GDP to slow to 1.5 per cent in 2018, as Brexit uncertainty and the inflationary squeeze on household spending power puts the brakes on the United Kingdom economy.

THE International Monetary Fund (IMF) has cut its outlook for United Kingdom economic growth and said the Government may be forced to make deeper spending cuts following the impact of Brexit.

In a document published shortly before the vote, the International Monetary Fund forecasted that in a "limited" impact scenario for the Brexit vote (in which trade talks started smoothly) would reduce UK GDP growth in 2017 from 2.2 per cent to 1.4 per cent and from 2.2 per cent to 1.8 per cent in 2018.

But it said that was largely down to stronger economic growth worldwide - aided by the weaker pound making United Kingdom goods more competitive. The significant depreciation of sterling that followed the referendum has pushed inflation over three per cent, squeezing real incomes and private consumption.

"These two decisions are already having an impact in the economy even though the United Kingdom is not expected to leave the European Union until 2019", Lagarde said.

"Companies are also delaying some investment decisions until they have greater clarity about post-Brexit trade rules".

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It warned that the financial services and manufacturing sectors faced significant challenges in particular - with the Treasury at risk of losing tax revenue fast if a "meaningful share" of financial business was moved from United Kingdom shores to within the EU. Business investment has also been weaker than would be expected amid a global economic recovery.

The IMF's June 2016 document had also included an "adverse" Brexit scenario in which the United Kingdom economy would contract in 2017 by 0.8 per cent and grow by just 0.6 per cent in 2018 - effectively a serious recession.

The IMF also declared that it did not see much more room for Government spending cuts to help the "critical" need for the United Kingdom to protect itself against possible future shocks by reducing its budget deficit further.

It added: "Early agreement on a transition period would avoid a cliff edge exit in March 2019 and reduce the uncertainty facing firms and households". This was said a year and a half ago but regrettably the numbers we are seeing the economy deliver today are actually proving the point we made a year and a half ago when people said "You are too gloomy, you are one of those experts".

"We were pretty much on the mark", Lagarde said.

Since the turn of the year, Lagarde said activity had slowed notably and the UK's recent performance was a disappointment in the light of the best showing by the global economy since the financial crash.

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