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Britain was on a collision course with the International Monetary Fund today after the Washington-based financial watchdog slashed its forecasts for economic growth.
The IMF said that the global economy is recovering faster than expected but the UK is still languishing. It now thinks that Britain's GDP will grow at 1.2% this year and 2.1% in 2011, down from the 1.3% and 2.5% earlier forecast.
The 2011 figure is well below the 2.3% predicted by the Office for Budget Responsibility, set up by Chancellor George Osborne to produce independent economic forecasts.
The IMF warning came as the Bank of England held interest rates at the historic low of 0.5% for the 16th month running — an indication that the Bank's Monetary Policy Committee is still far more concerned about rising unemployment than inflation.
The IMF is raising its forecast for global economic growth this year, from 4% to 4.5%. The world economy performed strongly in the first half of this year, largely thanks to robust growth in Asia.
Concerns over the sustainability of government finances in the developed world, especially Greece and others in Europe, were the major threat to global recovery, the agency argued.
It said governments should focus on improving their finances, but warned them not to make cutbacks too rapidly, which some saw as a swipe at Osborne who is trying to force through the most dramatic cuts in a generation.
The IMF has raised its growth forecast for China to 10.5% this year from 10% in April, for Japan to 2.4% from 1.9% and for India to 9.4% from 8.8%.
The US is also doing better, with growth forecasts revised higher to 3.3% from 3.1% this year and to 2.9% from 2.6% in 2011.
José Viñals, the director of the fund's monetary and capital markets department, warned that Europe's problems “could spill over to other regions and stall the global recovery”. He stressed that “further credible and decisive policy action is needed”.
In recent weeks, a number of governments have introduced austerity measures to cut deficit levels.
There was some good news from the Government today when figures showed that UK manufacturing grew at its fastest pace for years in May.
Manufacturing output rose by 4.3% on the same month a year ago, the highest rate since December 1994, the Office for National Statistics said.
The increase was driven by the machinery and equipment industries, as well as basic metals and metal products. Month-on-month, manufacturing output was 0.3% higher.
David Kern, chief economist at the British Chambers of Commerce, said: “The new figures leave manufacturing firmly in positive territory when compared with a year ago, and reinforce expectations that GDP will record stronger growth in the second quarter of 2010. But the level of manufacturing output is still some 10% below that recorded in 2007.”
Reader views (2)
The IMF's past forecasts have been continuously wrong so why are we giving them credit now.
Everyone knows its going to get worse, and we should look at the 250 index which represents a damn site better perspective of UKplc than all the foreign minig companies in the 100.
We are being protected at the moment by sunshine and the summer, but come the depths of winter we should prepare for the worst. We wont be alone in a double dip either the USA and Europe will be far worse.
- Robert Marshall, London, 08/07/2010 17:48
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Quote: but warned the euro area's debt crisis posed a big risk to recovery.
Take note all you British Politicians: Do not continue your obsession with the EC, or the Euro?
If you do; and you persist to inflict your own personal views and your own personal interests in the EC; then you are committed and branded traitors, to all the people of the UK, that you are supposed to represent; if you wish to persist in your personal and obsessive habits in the EC, then at least give the British people a referendum on their personal choices, and not blatantly go ahead with your own personal and biased choices etc.
- mickinlondon, london, 08/07/2010 10:21
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