The International Monetary Fund (IMF) slashed its UK outlook after the country voted to leave the European Union and forecast the economy will grow at its weakest pace since 2012 next year.
The IMF said in its World Economic Outlook on Tuesday that Britain’s gross domestic product will rise 1.7% this year before expansion cools to 1.3% in 2017, the slowest for a calendar year since the height of the euro-area sovereign debt crisis in 2012. The latest projections compare with forecasts for 1.9% and 2.2% published in June, just before the EU referendum.
The UK’s downward revision was the largest among advanced economies as the IMF scrapped its forecast for a pickup in global growth this year, citing Britons’ vote for Brexit. It also warned the damage could worsen if confidence falters among investors and companies.
“The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences,” the IMF said in its quarterly WEO. “But with the event still unfolding, it is very difficult to quantify its potential repercussions.”
The IMF’s new forecasts are based on the assumption that British and EU officials reach new trade agreements that avert a “large increase in economic barriers.” However, if talks break down, Britain will slip into recession as more financial institutions relocate to the euro area and consumption and investment shrink more than expected, the fund said.
The IMF sees the global economy growing 3.1% this year. That would match the pace in 2015 and compares with a forecast of 3.2% published in April. The 2017 projection was cut to 3.4% from 3.5%. In a “severe” scenario of a breakdown in Brexit talks, global growth is seen sliding to 2.8% this year and next.
The IMF said it had planned to modestly upgrade its global outlook before the EU referendum as activity in China came in stronger than expected and recessions in Brazil and Russia turned out less severe than anticipated.