THE UK’s weaker growth outlook, as Brexit weighs, has been contrasted with a stronger picture in the eurozone by the International Monetary Fund.

In its latest regional economic outlook, entitled “Europe Hitting Its Stride”, the IMF also warns of the negative economic effects in the event of the UK leaving the European Union without a deal.

The IMF says: “There could be protracted policy and economic uncertainty on a broad range of issues for both the European Union and the United Kingdom, because of the complex and drawn-out process and compressed timeframe for negotiations on the post-Brexit economic relationship.

Loading article content

“If the United Kingdom leaves the European Union without an agreement, there will be a notable increase in trade barriers, potentially accompanied by disruption of services in various sectors, with significant negative impact on economic activity.”

In the UK, the IMF highlights the squeeze on households from the surge in inflation following sterling’s post-Brexit vote plunge.

The IMF says: “All euro area countries are growing, and the dispersion of growth rates is the lowest in nearly two decades. The Nordic economies and other advanced European economies are seeing similarly strong domestic demand. In the United Kingdom, weakness in the pound has led to a squeeze of real incomes and some slowdown in demand.”

The IMF now projects growth of 2.4 per cent in Europe this year, having revised this projection up from 1.9 per cent in April. It forecasts 2.1 per cent expansion in Europe in 2018. Europe recorded growth of 1.7 per cent in 2016.

In contrast, the IMF has cut its projection for UK growth this year from two per cent in April to 1.7 per cent. It forecasts the UK will grow by just 1.5 per cent in 2018 and 1.6 per cent in 2019. The UK grew 1.8 per cent last year.

Highlighting an improved outlook in the single currency zone, the IMF says: “In the euro area, growth has been revised up to 2.1 per cent, from 1.7 per cent in the April projection, for 2017, and to 1.9 per cent for 2018, from 1.6 per cent in April, reflecting stronger-than-expected growth in the first half of this year and improved high-frequency economic and confidence indicators.

“In addition to cyclical factors, the improved growth prospects also reflect higher estimates of potential growth on the back of stronger investment.”

The IMF adds: “The near-term outlook has…improved in the Nordics and other advanced Europe, except the United Kingdom and Switzerland. Growth in the Nordics, the Czech Republic, and Israel is revised up reflecting strong momentum so far. In contrast, growth in the United Kingdom is projected to slow to 1.7 per cent in 2017 and 1.5 per cent in 2018, as Brexit has started to weigh on growth.”

The IMF declares “recovery in Europe has gained speed”, highlighting the projected overall growth of 2.4 percent for 2017.

It adds: “All European economies are growing, and the continent has become an engine of global trade. In the euro area, growth has not been this even across the member countries for nearly two decades. In member countries that receive EU funds to help them bring their economies up to the level of their richer peers, an uptick in the flow of funds added to faster growth. In the United Kingdom...growth slowed when households felt the squeeze of a weaker pound.”