IMF has good news for UK, but global growth “weak and uneven”

7th October 2014

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The UK’s economy is out of the woods, but global growth will be  “weak and uneven” this year and next, the International Monetary Fund has warned.

The IMF’s latest World Economic Outlook contained positive news for the UK economy. It forecast growth of 3.2% for the UK in 2014, slowing to 2.7 per cent next year, above the long-term average.

Unemployment fell from an average of 7.6% in 2013 to 6.3% this year and is expected to fall further to 5.8% in 2015, helping to boost productivity.

Oliver Blanchard, the IMF’s chief economist, said: “The US and UK in particular are leaving the crisis behind and achieving decent growth.”

The fund urged the Bank of England to keep interest rates lower for longer and forecast  a rise in the first half of 2015. However, it warned there was a risk of house prices and mortgage borrowing rising too rapidly and requiring earlier action from the Bank.

But, the IMF has cut its growth forecasts for the world economy and warned that it might never reach the same levels of expansion that were witnessed before the financial crisis.

It now expects world growth to be 3.3% in 2014, down 0.1% from its July forecast, and 3.8% in 2015, down 0.2% from three month ago.

The report said that global markets may be under pricing risk and there is a danger of contagion from geopolitical crises.

It said: “Financial markets have been optimistic, with higher equity prices, compressed spreads, and very low volatility. However, this has not translated into a pickup in investment, which—particularly in advanced economies—has remained subdued.

“And there are concerns that markets are underpricing risk, not fully internalising the uncertainties surrounding the macroeconomic outlook and their implications for the pace of withdrawal of monetary stimulus in some major advanced economies.”

It added: “Geopolitical tensions have risen. So far their macroeconomic effects appear mostly confined to the regions involved, but there are tangible risks of more widespread disruptions.”

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