The International Monetary Fund (IMF) has downgraded the UK economic forecast, as a result of continued Brexit-related uncertainty.
The Fund said it anticipates growth of 1.6 percent for this year, down slightly from previous forecasts of 1.7 percent. It expects growth to slow even more so next year, slipping to 1.5 percent.
Speaking at the Treasury as the IMF announced the results of its annual health check of the UK economy, Christine Lagarde, the fund’s managing director said:
“We feared that if Britain decided to leave, it would most likely entail a depreciation of sterling, higher inflation leading to a squeeze on disposable income and a reduction in investment,” she said.
“People said ‘Oh those experts’, but we are seeing the narrative we identified as a potential risk being rolled out as we speak. This is not the experts speaking, it’s what the economy is demonstrating.”
Ms Lagarde did not accept criticism that the fund had been unduly negative about the future prospects of the British economy.
She said: “We were not too gloomy. Our forecasts turned out to be the reality of the economy: higher inflation due to currency depreciation, wages down and delayed investment because of uncertainty.”
Looking ahead, Lagarde noted that raising productivity levels will prove instrumental to increasing living standards, and notably, securing a new trade deal could help resurrect stagnated productivity in the UK.
This follows last week’s decision from the Bank of England (BoE) to leave interest rates on hold.
Members of the Monetary Policy Committee (MPC) voted unanimously to maintain rates at 0.5 percent.
Earlier this year in November, the MPC lifted rates from the record low of 0.25 percent, after taking into consideration record-low levels of unemployment, rising inflation and the stronger global economy.
Nevertheless, the decision to keep rates at the same level was linked to pound sterling weakness, and inflationary levels which failed to remain within the central bank’s target of 2 percent.