IMF sees growth for UK but downgrades global outlook

IMF managing director Christine Lagarde with Prime Minister David Cameron Credit: REUTERS/Kevin Lamarque

The International Monetary Fund (IMF) predicts the UK economy will grow faster this year than last, but has slashed its forecasts for global growth this year.

Its latest World Economic Outlook update sees growth of 3.5% for this year and 3.7% in 2016, both down from previous forecasts made last October.

The IMF expects the UK to grow by 2.7% this year while it has cut its forecast for 2016 by 0.1% to 2.4%.

It also downgraded its reading of UK growth for 2014. It now estimates that GDP in Britain grew by 2.6% compared to a previous forecast of 3.2%.

Even with the lower reading for 2014, growth of 2.6% in 2014 would come in ahead of major international rivals such as the US, according to the projections.

Chancellor George Osborne said the outlook showed that Britain was "pulling ahead" while global growth is being downgraded.

The IMF said that the economic performance of all major economies had fallen short of expectations, with the exception of the US.

It said that while the world would receive a boost from lower oil prices, this would be "more than offset by negative factors".

These include 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.

Lower fuel prices are predicted to give a boost to the UK economy as a whole Credit: Nick Ansell/PA Wire

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.