UK economy to underperform all of Europe except Italy - IMF

Britain’s economy will perform worse than the rest of Europe, except Italy, over the next two years as it navigates Brexit, the IMF said in its World Economic Outlook on Tuesday.

Despite striking a sombre tone on the prospects for the global economy during a period when it said major economies were “flirting with trade war”, the fund singled out the UK. Higher barriers to trade and lower foreign direct investment following Brexit next year would prevent Britain from performing better, it said.

Good times in the global economy will not last, the fund said in its twice-yearly economic forecast, highlighting the “jarring” contradiction between broad-based global growth momentum and a “similarly broad-based conflict over trade”.

It urged nations to use a “window of opportunity” to carry out reforms to boost growth rates before the current upswing - the strongest since 2010 - petered out.

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Maurice Obstfeld, the IMF’s chief economist, said global growth would slow by 2020 and warned that jostling over a trade war would distract from the reform agenda “rather than advancing it”.

Even with the sluggish outlook for the UK, however, the fund recommended the Bank of England raise interest rates to keep a lid on stubbornly high inflation.

“The unemployment rate in the UK is close to historic lows; further declines could add to inflation pressure by triggering faster wage growth in a context of inflation that is already above target following currency depreciation after the June 2016 Brexit referendum,” the IMF said in the twice-yearly economic forecast. “Gradual monetary tightening is therefore needed to ensure that inflation returns to target.” - Copyright The Financial Times Limited 2018