The UK economy will have contracted by 0.4% by the end of the year, according to the International Monetary Fund. This overturns the organisation’s earlier expectations, which had predicted growth of 0.2% for 2012.
Growth expectations for next year were also revised down, from 1.4% to 1.1%.
The figures were included in the IMF’s World economic outlook, published today, which painted a generally gloomy picture, revising down earlier forecasts for countries across the globe.
Economic growth in the world’s leading economies is now expected to be 1.3% this year and 1.5% in 2013 – down from the 1.4% and 1.8% predicted in July. Countries’ efforts to reduce their deficits and the continuing weakness in the banking sector were cited as drags on advanced economies.
Regarding the UK, the IMF noted that, unlike many other advanced economies in Europe, domestic demand remained sluggish. This was because the UK’s financial sector had been hit particularly hard by the global financial crisis, while the ‘ongoing repair of overstretched private and public balance sheets weighs on the domestic demand’, the IMF said.
It added that further monetary easing might be necessary, depending on the effect of the last round.
Speaking from the Conservative Party conference in Birmingham, Prime Minister David Cameron said his government would maintain its austerity strategy. ‘We need to keep our plans – difficult though they are – to cut public spending and deal with the deficit,’ he told Sky News.
