Lagarde says Brexit already having adverse impact on UK economy

The International Monetary Fund (IMF) has cut its outlook for UK economic growth, and said the British government may be forced to make deeper spending cuts following the impact of Brexit.

In its annual review of the UK economy, the IMF said UK gross domestic product (GDP) looked set to expand by 1.6 per cent this year, knocking back its prediction of 1.7 per cent growth from October.

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 put the brakes on the UK economy.

The Washington DC-based organisation said firms were likely to continue deferring investment decisions until there was greater clarity on the UK’s future trading relationship with the EU.

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Speaking in London, IMF managing director Christine Lagarde said even though Britain had not yet left the EU it was already having an adverse impact on the economy.

Greater clarity

“Since the start of this year growth has slowed notably. The significant depreciation of sterling that followed the referendum has pushed inflation over 3 per cent, squeezing real incomes and private consumption. Companies are also delaying some investment decisions until they have greater clarity about post-Brexit trade rules.”

She added that Britain was likely to face significant fiscal pressures, and a slowing economy would mean less cash for public spending.

“These challenges are likely to become even more acute if trade barriers further reduce productivity.” – Reuters