UK economic growth outlook slashed by IMF due to weak pound and spiking inflation

The IMF described the UK's medium-term growth outlook as 'highly uncertain'

UK GDP growth was just 0.3 per cent in the second quarter of 2017 (Getty)

The International Monetary Fund has reiterated its downbeat outlook for UK economic growth this year, citing a slump in private consumption and a dramatic tumble in the value of the pound weighing on household spending.

In its twice yearly benchmark World Economic Outlook, the Washington-based organisation raised growth forecasts for all advanced economies aside from the UK.

It said that it now anticipates the UK economy - which grew at just half the rate of the eurozone's in the second half of this year - to expand by 1.7 per cent in 2017 and by 1.5 per cent in 2018.

Its 2017 forecast back in April had been for the economy to grow by 2 per cent. It said that it had revised that figure due to weaker-than-expected growth during the first two quarters of the year. In an interim forecast published in July it already said that it expected growth of just 1.7 per cent this year.

“The slowdown is driven by softer growth in private consumption as the pound’s depreciation weighed on household real income,” it said.

It described the medium-term growth outlook as “highly uncertain” and said that it depended at least in part on the UK’s future economic relationship with the EU, and the extent of the increase in barriers to trade, migration, and cross-border financial activity.

The British economy displayed surprising resilience in the immediate aftermath of the Brexit vote, with an expansion of 0.5 per cent in the third quarter of the year and 0.7 per cent in the final quarter. But it's since started to splutter.

GDP growth was just 0.3 per cent in the second quarter of 2017, according to the Office for National Statistics. Growth over the same period in the 19-member single currency bloc was 0.6 per cent. And because of the pound’s slump, UK inflation has spiked.

It hit 2.9 per cent in August, matching a reading from May, which itself was the highest since June 2013. Annual total wage growth in the three months to July was just 2.1 per cent, highlighting the squeeze that UK households are feeling.

The IMF said that it only expects the UK to outperform a small handful of its peers this year, including with Italy which is expected to grow by 1.5 per cent, France, by 1.6 per cent and Japan by 1.5 per cent.

But its latest forecast is marginally higher than the 1.6 per cent growth pencilled in by the Organisation for Economic Co-operation and Development for this year. Even more pessimistically, the Centre for Economics and Business Research anticipates that the UK economy will grow by just 1.3 per cent in 2017, representing a substantial downward revision from an earlier forecast of 1.7 per cent.

Beyond the UK, the IMF is broadly upbeat on the global economy for this year and next. The US economy is now expected to grow 2.2 per cent this year and 2.3 per cent in 2018.

It projects world growth to increase from 3.2 per cent in 2016 to 3.6 per cent in 2017 and 3.7 per cent in 2018—an upward revision of 0.1 percentage point for both 2017 and 2018 relative to its April report. Beyond next year, it said that it expects global growth to increase marginally, reaching 3.8 per cent by 2021.