IMF cuts UK growth forecast, Treasury calls for smooth Brexit

LONDON (Reuters) – Britain has suffered the biggest downgrade of economic growth projections by the International Monetary Fund for the world’s rich nations this year, prompting the finance ministry to renew its call for a smooth exit from the European Union.

Britain’s economy now looks set to grow by 1.7 percent this year, down from a forecast made in April of 2.0 percent but still higher than growth in France, Italy and Japan, the IMF said.

The IMF said its downgrade reflected Britain’s weaker-than-expected growth in the early part of this year.

“The ultimate impact of Brexit on the United Kingdom remains unclear,” the Fund’s chief economist Maurice Obstfeld said.

The IMF in April raised its forecasts for British growth after the economy withstood the initial shock of the referendum decision in June last year to leave the EU.

Britain’s Chancellor of the Exchequer, Philip Hammond, leaves 11 Downing Street, in central London, Britain July 17, 2017.Tolga Akmen

However, the world’s fifth-biggest economy grew by just 0.2 percent in the first quarter of 2016 compared with the last three months of 2016 as accelerating inflation – caused in large by part by the fall in the value of the pound since last year’s Brexit vote – prompted consumers to rein in their spending.

The economy is expected to have picked up only a bit of speed to 0.3 percent in the second quarter, according to the median forecast of economists polled by Reuters ahead of the release of preliminary data on Wednesday.

People shop at a Sainsbury’s store in London, Britain October 11, 2016.Neil Hall

British Chancellor Philip Hammond has stressed the need for a transition deal to ease Britain out of the EU, angering some Brexit campaigners. A spokesman for the Treasury said the weaker growth seen by the IMF was a reminder of the need to smooth Brexit as much as possible.

“This forecast underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU, are vitally important,” the spokesman said.The 0.3 percentage-point cut to Britain’s 2017 growth forecast contrasted with upgrades for most of the big advanced economies covered by the IMF’s forecasts although the projection for U.S. growth this year was cut by 0.2 percentage points.

The IMF maintained its forecast for British economic growth to slow to 1.5 percent in 2018, slightly slower than expected growth in France and Germany next year.