The Washington-based IMF predicted Britain’s gross domestic product (GDP) will now be 1.1 per cent in 2011, compared to the IMF’s last projection in April of 1.7 per cent, and will be 1.6 per cent in 2012, compared to an original forecast of 2.3 per cent. It followed an earlier downward revision by the Paris-based OECD.
The IMF said it expects the world economy to expand 4 percent this year and next compared to its own June forecasts of 4.3 percent and 4.5 percent.
It cut its own growth projection for the United States to 1.5 per cent from
2.5 per cent.
The United Kingdom is expected to fare worse than Germany, France, the US and Canada.
The IMF, in its World Economic Outlook, repeated managing director Christine Lagarde’s warning earlier this month that the UK may need to amend its austerity programme, but in more opaque and even euphemistic phrasing.
She said Britain was right to continue with its deficit reduction strategy but should be quick to vary it “if it looks like the economy is headed for a prolonged period of weak growth and high unemployment”.
Ms Lagarde said the “the heightened risk” posed by the global downturn – or recession – meant the UK needed a “heightened readiness to respond”.
The IMF reports says: “If activity were to undershoot current expectations, countries that face historically low yields should also consider delaying some of their planned adjustment. Everywhere, fiscal consolidation should be supported by structural measures to bolster growth prospects.”
It said it had countries such as Britain and Germany in mind.
The IMF predicted “severe” repercussions if Europe fails to
resolve its eurozone debt crisis or if the US government remained deadlocked in Washington over President Barack Obama’s deficit reduction plans.
Earlier this week, the Financial Times, using the Office of Budget Responsibility’s own figures and models, found a £12 billion “black hole” in the Government’s finances, suggesting that if it is to meet Chancellor George Osborne’s own deficit reduction target for 2015, it must either raise taxes – equivalent to another 2.5 per cent on VAT – or find further cuts in public spending.
The IMF’s revised figures similarly found that the Government has less spare capacity in public finances than originally anticipated because of the share of national income accounted for by the structural deficit.
It put the “hole” at £10 billion.
