Why the IMF is more pessimistic on UK economic recovery

Britain’s economic recovery will be weaker than expected with Europe suffering from a second coronavirus wave and the country’s post-Brexit trade deal with the EU unresolved, the IMF said on Thursday.

The UK economy will contract by 10.4 per cent this year and grow by 5.7 per cent in 2021, the International Monetary Fund forecast.

Just two weeks ago, the IMF predicted a 9.8 per cent contraction this year and growth of 5.9 per cent next.

“The outlook is for a muted recovery with risks weighted to the downside,” the Fund said in a statement on Thursday.

“The sharp summer rebound in activity faces strong headwinds from a second wave of Covid-19 infections, Brexit-related uncertainty, rising unemployment, and stress on corporate balance sheets.”

Speaking with reporters online, IMF head Kristalina Georgieva said Britain’s financial rescue package triggered by the virus and carried out by its government and central bank “is one of the best examples of coordinated action” seen globally.

“My main message today is that continued policy support is essential to address the pandemic and to sustain and invigorate a recovery.”

UK finance minister Rishi Sunak cautiously welcomed the IMF’s updated outlook.

“Today’s IMF report is an important moment — they confirm the UK is on the right economic course,” said the chancellor of the exchequer.

But he added: “They rightly warn us of the economic dangers that still lie ahead.”

The UK government last week improved its new jobs-support scheme after businesses hit by regional coronavirus lockdowns claimed it did not go far enough.

Despite the change, the scheme remains much watered down compared with a government jobs furlough package that ends on October 31.

The British government on Thursday vowed to persist with localised coronavirus restrictions, despite fresh data showing surging numbers of cases and deaths across the country, and new national lockdowns in its European neighbours.

Britain is the hardest hit country in Europe, with more than 45,000 fatalities among those testing positive.