10 Oct 2018 11:47am

UK should be flexible on public spending, says IMF

The International Monetary Fund (IMF) has suggested chancellor Philip Hammond relax public spending due to uncertainty surrounding Brexit

“At a time of heightened uncertainty, monetary policy should remain flexible in response to changing conditions associated with the Brexit negotiations,” the IMF stated in its 2018 World Economic Outlook report.

Last month, the IMF suggested that UK tax reforms could help “reduce economic distortions” in the wake of Brexit.

The latest pronouncements support prime minister Theresa May’s vision for Brexit spending which she reaffirmed at last week’s Conservative Party Conference, announcing that it was the “end of austerity” and “there are better days ahead”.

The IMF downgraded the UK’s growth forecast from 1.7% to 1.4% for 2018, rising slight to 1.5% for 2019.

In terms of advanced economies, only Japan (1.1%) and Italy (1.2%) achieved lower forecasts for 2018 although the euro area had its growth forecast downgraded by 0.4% to 2.0% for 2018.

Last month, the British Chambers of Commerce downgraded UK GDP growth forecasts to 1.1% from 1.3%, the “second weakest decade of annual growth on record”.

These downgrades were part of a larger global picture, as the IMF also downgraded its global growth rate to 3.7% from last April’s projection of 3.9%.

Maurice Obstfeld, IMF economic counsellor and director of research, said that in light of developments since April last year, the previous projection now appeared “over-optimistic”.

This decrease resulted from downgrades to the US and Chinese growth forecasts as well as those of Korea, the euro area, the UK and developing economies.

In reference to Brexit, Obstfeld noted that the IMF’s baseline forecast was predicated on a deal being reached in which trade in goods would be “essentially tariff-free” and that included a financial services regime favourable to the UK.

In July, IMF analysis predicted there would be “no winners” from Brexit and that it would be destructive to the UK’s and member states’ economies.