IMF cuts UK growth forecast again amid eurozone warning

The International Monetary Fund yesterday cut its 2011 growth forecast for the UK economy to 1.75 per cent, its third downgrade in a year.

In its latest World Economic Outlook, the IMF said the revision, from the 2 per cent in predicted in November, was the result of the "necessary" fiscal consolidation, which will dampen domestic demand.

It also warned that the downside risks to UK growth have increased as the potential for policy mistakes in the eurozone have risen.

The cost of oil and other raw materials, which have jumped 32 per cent over the last year according to the IMF's own index, also pose threats to recovery.

Although it reduced its 2011 forecast for the UK the IMF kept its prediction for 2012 unchanged at 2.3 per cent.

The report said the global economy should grow by 4.4 per cent in 2011, but warned of threats caused by rising oil prices, unrest in the Middle East, continued inflation in China and debt problems in Europe.

Economists revised down their 2011 growth forecast for the US to 2.8 per cent and warned that the country's debt problems could destabilise the global financial system. Addressing the debt issue was "particularly urgent", the IMF said. It also warned that US house prices may fall more than expected given the "large, shadowy inventory of distressed properties."

The report also argued that governments which were not taking a hard enough line on public spending cuts were undermining efforts towards longer-term sustainable growth.

The IMF warns that many countries will see rising unemployment this year with the potential for social unrest increasing in both developed and emerging economies.

"Unemployment poses grave economic and social challenges, which are being amplified in emerging and developing economies by high food prices," economists added.