The International Monetary Fund has predicted the UK will be the fastest growing of the G7 leading industrial countries this year and accepted that its prediction of a post-Brexit-vote financial crash has proved to be overly pessimistic.
But while the Washington-based IMF said Britain would have a “soft landing” in 2016 with growth of 1.8%, it stuck to its view that the economy would eventually suffer from the shock EU referendum result and said expansion next year would be just 1.1% – lower than it expected in the immediate aftermath of the Brexit vote.
Maurice Obstfeld, the IMF’s economic counsellor, said the fund had been right to warn about the risks of Brexit but added: “We are looking at a soft landing for 2016. We are happy about the outcome.”
Looking further ahead, Obstfeld said the uncertainty about the divorce settlement between Britain and the EU would make businesses more cautious and warned that the fall in sterling – which hit a 31-year low on Tuesday – would hit living standards.
The pound sank to $1.274, its lowest level since June 1985. However, the decline provided another boost to companies with sales in dollars and the FTSE-100 soared 90 points to 7074 – its highest close since April 2015’s record high of 7104. The FTSE 100 index is now up nearly 28% since February and has climbed 12% since referendum day on 23 June.
Philip Hammond, the chancellor, said the UK economy had shown its resilience since the referendum but there was no room for complacency.
“There are still challenges ahead, as the IMF note in their estimate for growth in 2017. That is why I stand ready to take action to support our economy through any period of turbulence and will continue to pursue the long-term goals of fiscal consolidation and improved productivity.”
The IMF used its half-yearly world economic outlook (WEO) to warn not just about the impact of the referendum result on the UK and the wider eurozone economies, as well as the weak growth and uneven division of the fruits of growth that caused 52% of those who votedto end Britain’s 43-year membership of the EU.