Economic outlook downgraded, but not due to Brexit
The International Monetary Fund believes the UK economy will grow more slowly this year than previously predicted, but not due to Brexit.
It has downgraded its forecast for the UK economy to 1.7%, down from a previous prediction of 2%.
The downgrade comes as the UK economy reported “weaker-than-expected activity” in the first quarter.
But the forecast for the UK economy next year remains unchanged at 1.5%, with the IMF using an optimistic assessment of Brexit negotiations.
IMF chief economist Maurice Obstfeld said:
“We have long predicted that Brexit would have some negative long-term effects, but in the case of this year’s forecast [downgrade] we are basing it purely on the observation of data for the first part of this year which has been weaker than expected.
“Our projections for long-term British growth are actually based on a pretty optimistic assessment of how the negotiations are likely to turn out, so if things are worse than that it will turn out to be correspondingly worse for the British economy.”
As well as downgrading its outlook for the UK economy this year, the IMF took the US down a notch as well.
It revised down the US growth forecast for 2017 from 2.3% to 2.1%, a move that is bound to upset the growth hungry President Trump.
For next year, the US economy is forecast by the IMF to grow more slowly than previously forecast too, at 2.1% rather than 2.5%.
The global economic outlook remains fairly robust, with unchanged forecasts of 3.5% growth this year and 3.6% next year.
Within its latest World Economic Outlook report, the IMF confirmed a “pick-up in global growth” which was anticipated in its previous quarterly survey. Whilst the global economic growth forecast is unchanged, it does mask “somewhat different contributions at the country level”.
Regardless of where you stand politically or ideologically on Brexit, it’s positive to see a more upbeat assessment from a previous harbinger of doom.
The IMF was vocal before the referendum last June, warning of the dire consequences of leaving the European Union. What we would hope to see now from them and other commentators is a more pragmatic assessment of the actual economic impact.
A new survey published today shows that UK businesses want a stable trading environment post-Brexit.
The top priority for more than half of UK business leaders is to have the right trade arrangements in place with the EU. This is three times more important than having access to EU workers, with only 18% saying this was a priority.
The survey for business finance company MarketInvoice found that the current uncertain economic environment is the main factor keeping more than half of UK business leaders awake at night. They are apparently less concerned by the stability of the government, foreign worker rights or even a weak Pound Sterling.
On Brexit specifically, the majority of business leaders (85%) now believe that the Government is tuned into the voice of business. This is an improvement on the numbers reporting this view in March, when Article 50 was triggered.
However, they are not confident or convinced that the negotiating team will defend the interests of business. Just over a quarter feel the UK negotiators have lost their way and will be in for a shock and a further quarter feel they lack preparedness for the negotiations.
Only 5% of the business leaders surveyed feel that David Davis is doing a great job.
It’s worth noting there’s usually a weak correlation between the economy and stock market, in the short-term at least.
This correlation becomes moderately stronger over longer periods of time, although there are plenty of examples where the stock market was clearly disconnected from what took place in the real economy.
Investors should take care not to focus too much on economic reports or forecasts as a predictor of short-term market returns.