Donald Trump’s US tax cuts will help lift global growth further over the next few years though the UK looks set to trail behind, according to latest forecasts from the International Monetary Fund (IMF).
The IMF’s World Economic Outlook pencils in expansion of 3.9% for the world economy for this year and next – an upgrade of 0.2 percentage points in each case.
But it forecasts growth in the UK at 1.5% in each of 2018 and 2019, lagging well behind the average pace of fellow advanced economies – having led the pack as recently as 2016.
For the year 2019, the outlook represents a 0.1 percentage point downgrade for Britain.
IMF chief economist Maurice Obstfeld said the main sources of the upturn in world GDP were in Europe and Asia, with the US and Canada and a return to expansion for large emerging markets Brazil and Russia – which shrank in 2016 – as well as Turkey.
The body also said recently-implemented US tax cuts would stimulate growth, adding 1.2% to the world’s biggest economy by 2020 – though due to the temporary nature of the some of the policies it would lower growth from 2022 onwards.
The IMF said the impact on the US and its trading partners would “contribute about half of the cumulative revision to global growth over 2018-19”.
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Mr Obstfeld said: “As the year 2018 begins, the world economy is gathering speed.
“This is good news. But political leaders and policy makers must stay mindful that the present economic momentum reflects a confluence of factors that is unlikely to last for long.”
He warned that “the next recession may be closer than we think” and that it may be harder to deal with than a decade ago given the scale of public sector debt.
UK growth has been slowing in the wake of the Brexit vote.
It had been, together with Germany, the fastest-growing of the G7 economies in 2016.
The pace of growth of the advanced nations was 1.7% in that year and is expected to have advanced to more than 2% for last year, this year and next.
But the UK is forecast to go in the opposite direction, with growth pencilled in by the IMF at 1.7% for 2017 before slipping further.
Last year’s slowdown has been blamed on the squeeze on consumers caused by higher inflation – largely the result of the pound’s plunge after the Brexit vote – as well as uncertainty over Britain’s future outside the EU.
However, survey reports have also pointed to a boost to Britain’s manufacturing sector as the weakness of the pound, combined with the strength of the global economy, lifts exports.
The IMF’s latest report cited possible trade barriers and regulatory shake-ups as risks to growth as the UK seeks a new relationship with Europe after Brexit and the US renegotiates its free trade treaty with neighbours Mexico and Canada.
A Treasury spokesperson responded to the report by saying: “We are building a Britain that is fit for the future by improving skills, backing innovation and investing in infrastructure to deliver a stronger economy and guarantee a better future for the next generation.”
Shadow Chancellor John McDonnell said: “The IMF report out today confirms what others have been saying – the UK economy is not growing as fast as many other advanced economies. It further exposes the effect of the last seven years of Tory economic failure.
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“Philip Hammond should drop his plans to continue the austerity policies that have weakened our economy. We urgently need a change of direction from the Chancellor. There is no excuse for a ‘more of the same’ approach.
“The next Labour government will provide the serious investment our country needs, underpinned by our Fiscal Credibility Rule, to build a high wage, high skill economy for the many not the few.”