UK: IMF slashes forecasts for UK growth

Chancellor George Osborne

Chancellor George Osborne - Credit: PA

THE UK’s growth forecasts for this year and next have been slashed by the International Monetary Fund, with a warning that the private sector is being hampered by a lack of credit and economic uncertainty.

The IMF has cut this year’s forecast growth from 1% to 0.7% and 2014’s projection from 1.9% to 1.5%, and suggested that Chancellor George Osborne should consider changing his austerity plans in the light of “lacklustre” private demand.

In its World Economic Outlook report, the IMF also suggested further action on monetary policy, potentially including the purchase of private sector assets.

The report said: “In the United Kingdom, the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation.”

It said rebalancing from the public to private sector was “being held back by deleveraging, tight credit conditions and economic uncertainty”.

Hopes for an export-led recovery were also being hit by “declining productivity growth and high unit labour costs.”

In its suggested policy responses, the IMF said that “other forms of monetary easing could be considered, including the purchase of private sector assets and greater transparency on the likely future monetary stance”.

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Its recommendations added that: “Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand.”

However, the IMF’s projection for 2013 remains more optimistic than the forecast of 0.6% growth from the Office for Budget Responsibility (OBR).

In last month’s Budget Mr Osborne said the OBR had halved its forecast for this year from 1.2% and cut its prediction for next year to 1.8%.

The IMF’s forecasts for the UK come as the body warned “the road to recovery in the advanced economies will remain bumpy”.

The report forecast a 0.3% slump in the eurozone as a whole for 2013, with the single currency’s economic powerhouse Germany expected to grow 0.6% but France set to experience a 0.1% contraction.

The World Economic Outlook predicted growth in the US of 1.9% and 8.0% in China. The forecast for world output growth has been cut from 3.5% to 3.3%.

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