International Monetary Fund cuts outlook for United Kingdom economic growth

Christine Lagarde the IMF Managing Director. Stefan Rousseau  AP

Christine Lagarde the IMF Managing Director. Stefan Rousseau AP

GLOOMY Brexit economic forecasts for Britain have come true, International Monetary Fund chief Christine Lagarde claimed last night - as its experts cut their growth outlook for the UK.

"Overall, output is expected to grow by 1.6 percent this year, broadly in line with our estimate of the economy's potential".

The organisation's annual update on the health of the United Kingdom economy showed that while jitters over the looming divorce from the European Union had delivered a marked slowdown in growth this year, there was clear evidence of a boost to exports.

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Speaking in London, IMF managing director Christine Lagarde said even though Britain has not yet left the European Union, it is already having an adverse impact on the economy.

She said: "Since the start of this year, growth has slowed notably". The significant depreciation of sterling that followed the referendum has pushed inflation over 3%, squeezing real incomes and private consumption.

"These challenges are likely to become even more acute if trade barriers further reduce productivity". "Taken together, this means that the United Kingdom may in the future face hard decisions about the desired size of its public sector, as well as the mode of delivery and financing of public services".

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Separately the International Monetary Fund also welcomed "recent progress" in the Brexit negoitations but said ministers faced tough choices ahead if there was a loss of tax revenues from the financial sector coupled with slower productivity growth.

The fund was supportive of the Bank of England's decision to raise interest rates in November and the government's tax and spending policy, although it said that with pressures on public spending rising, any future deficit reduction should come more from tax increases than in the austerity policies of the past seven years.

While Prime Minister Theresa May last week secured an agreement on the first phase of Brexit negotiations, Lagarde said businesses need progress imminently on a transitional arrangement to allow them to plan ahead.

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"Unfortunately we were not too gloomy - we were on pretty much on the mark".

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