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IMF downgrades UK growth forecast on Brexit uncertainty

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The IMF has cut its UK economic growth forecast, blaming Brexit uncertainty.The Fund expects growth of 1.6% this year, down slightly from its previous forecast of 1.7%. It expects growth to slow further next year, to 1.5%.IMF chief Christine Lagarde said uncertainty over the Brexit deal was causing UK firms to delay investment plans.She also said rising inflation, caused by the fall in the pound, and stagnant wages were squeezing spending power.However, she said that the government had made “significant progress” in reducing the deficit.But she said that relative to growth in the rest of the world, “the UK is losing out as a result of higher inflation, pressure on wages and incomes and delayed investment”.She said that increased productivity was key to increasing living standards and that a new trade deal could help restore productivity levels in the UK.She said: “The shape of the new agreement with the EU will affect productivity performance through its implications for trade, investment and migration. “The higher are any new barriers to the cross-border flow of services, goods and workers, the more negative the impact would be.”However, Ms Lagarde also said: “Brexit has the potential to reshape the structure of the UK economy. The impact will depend on the nature of the final agreement and may take many years to fully materialize.”Brexit supporter and economist Ruth Lea said that while the fall in value of the pound has squeezed incomes, it has also helped exports.Ms Lea, who is economic advisor to the Arbuthnot Banking Group, also said that inflation is likely to fall, which will help company and household finances.Too gloomy?The IMF has made dramatic changes to its growth forecasts for the UK since the Brexit referendum. Immediately after the vote in June 2016, it slashed its forecast for 2017 from 2.2% to 1.3%. It then revised it sharply upwards at the start of this year, but since July has been steadily cutting it again. However, Ms Lagarde refused to say that the IMF had been too gloomy in its predictions for post-Brexit UK.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.”
Source: BBC