Last autumn, the International Monetary Fund estimated that the UK economy would grow by 1.6% through 2012. Whilst the growth was welcome, the government faced criticism that this wasn’t enough. Now, following the announcement that the UK’s economy actually shrunk in the first two quarters of 2012, that forecast has been revised down, and the IMF expect to see an increase in GDP of just 0.2% by the end of 2012.
Plenty of reports, economists and financial advisors have already warned that the situation has gotten worse, not better, but this latest revision gives critics of the coalition’s plan yet more ammunition. Ed Balls, the shadow chancellor, reminded parliament that the previous IMF report stated “the government should take urgent action to boost the economy including temporary tax cuts and more investment in infrastructure” if the economic forecast was reduced.
This reduction comes less than a year after the 1.6% estimation, and the IMF are pointing the finger at the eurozone crisis and the failure of European governments to do enough to stimulate growth themselves. It has also warned that without coming up with a cohesive plan of action to end the eurocrisis, even these growth forecasts could prove optimistic.
The miserable outlook continues into 2013 as well, and the IMF have downgraded their estimation of 2% growth through next year to 1.4%. Britain is still failing to reach the GDP it achieved before the financial crisis, currently performing at 4% below the 2007 high. On top of this, low growth means that the unemployment problems faced by the UK will worsen, leaving people without jobs and markets without consumers.
As Italy, Spain and Greece continue to make the headlines for their economic woes, and growth slows in China and the US, this may not be the last downgraded forecast we see in the coming months.