The IMF, which voiced strong misgivings about a vote for Brexit before the EU referendum, said it expected the UK economy to grow by 1.3% in 2017, 0.9 percentage points lower than an estimate made in its World Economic Outlook (WEO), in April.
After saying that leaving the European Union could trigger a UK recession, the International Monetary Fund now expects the British economy to grow by 1.7 per cent this year and 1.3 per cent next year.
That is weaker than the 1.9 and 2.2 per cent growth forecasts before the referendum, but the UK is still set to be the second-fastest growing economy in the Group of Seven industrialised nations this year – behind the United States – and third-fastest next year, behind the US and Canada.
While the fund is ruling out a full-blown recession, the analysis by one of the leading global economic bodies underlines the financial challenges facing Theresa May’s government during a period when slower growth will lead to lower tax receipts and a bigger budget deficit.
On Wednesday in Berlin, the prime minister will hold talks with the German chancellor, Angela Merkel. Both are keen to minimise the economic fallout of Brexit. Germany, with its heavy reliance on exports, is seen by the IMF as the most vulnerable eurozone country following Britain’s vote.
May and her ministers are keen to talk up the prospects for the economy, with the upbeat response from the Treasury to the IMF report contrasting with the pessimistic tone that had been adopted under George Osborne in the weeks leading up to the EU referendum.
The Adam Smith Institute said the “rebooting” of the economy after Brexit should include the scrapping of corporation tax, abolition of subsidies for farmers, and protection of Britain’s fishing waters.