The International Monetary Fund (IMF) today sharply marked down its reading of UK growth for 2014 and also slashed its forecasts for global growth this year and next amid a mixed effect from falling oil prices.
Its latest World Economic Outlook update estimated that gross domestic product (GDP) in Britain grew by 2.6% in 2014 compared to a previous forecast of 3.2%.
The IMF said that apart from in the United States, the economic performance of all major economies had fallen short of expectations. It also appeared to back further stimulus measures that look likely to be unveiled in the eurozone this week.
It still expects the UK to grow by 2.7% this year while it has cut its forecast for 2016 by 0.1% to 2.4%.
Growth of 2.6% in 2014 would come in ahead of major international rivals such as the US, according to the projections.
But the lower than previously predicted figure comes after official UK data last month showed the economy had grown less strongly than had been thought between the third quarter of 2013 and the same period in 2014 – by 2.6% rather than 3%.
Chancellor George Osborne said: “Today’s IMF forecast show Britain is pulling ahead, while global growth is being downgraded. There’s confirmation that we grew faster than any other major economy last year, and we’re set to grow faster this year.
“But there are risks out there in the global economy. It’s a timely reminder of that and we’ve got to go on working through our long-term economic plan if we want to stay ahead.”
GDP figures for the fourth quarter completing the picture will be published next week by the Office for National Statistics (ONS).
In today’s report published in Beijing, the IMF said it that it had cut its forecast for global growth this year by 0.3% for this year and next, to 3.5% for 2015 and 3.7% for 2016.
It said that while the world would receive a boost from lower oil prices, this would be “more than offset by negative factors” including investment weakness amid falling expectations about medium term growth in many advanced and developing states.
The IMF said the downward revisions reflected prospects in China, Russia, the eurozone and Japan – with stagnation and low inflation a concern in the latter two.
There had also been as weaker activity in some major oil exporters – with oil prices having dropped by more than half since September.
The IMF said: “The boost from lower oil prices is expected to be more than offset by an adjustment to lower medium-term growth in most major economies other than the United States.”
In the UK, a new forecast by the EY ITEM Club predicts that the lower oil price will provide a “shot in the spending arm” of consumers helping the economy to a major growth spurt this year.
Bank of England governor Mark Carney has said the fall in the oil price is a net positive for growth in the UK but that it will represent a “negative shock” to the Scottish economy which relies on North Sea reserves.
Oil giant BP has already announced hundreds of job cuts.
The IMF report comes days before a European Central Bank meeting which is expected to see a launch of money-printing quantitative easing stimulus to try to revive the ailing single currency zone.
It appeared to give backing to the move, saying that while the boost to demand for struggling advanced countries was welcome, “additional policy measures are needed in some economies”.
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