The International Monetary Fund (IMF) has issued both positive and negative forecasts for the UK economy. Its growth prediction for the country this year has risen from 1.5% to 1.6%, though the IMF has also warned that proposed tariffs on imports into the US by President-elect Donald Trump could cause significant problems with trade tensions, and might hit investment and disrupt supply chains throughout the world. While the IMF stated that policies such as tax cuts, deregulation and tariffs could help bolster the US economy in the short term, they may ultimately backfire on Trump’s government.
The introduction of higher US taxes on international imports could lead to raised costs for companies trying to sell to America, denting what is currently the biggest economy in the world. Tariffs will play a pivotal role in Trump’s economic strategy, as he believes they will bolster the US economy, offer protection for jobs and generate greater tax revenue. Measures such as tariffs could end up spawning an inflationary boom, followed by a drastic bust, which could erode confidence in US bonds as a safe haven for investment.
In addition to its upward revision of the UK economy’s growth forecast, the IMF has suggested that the country’s economic performance over the next two years will prove superior to that of France, Italy and Germany. The raising of growth expectations is good news for Chancellor Rachel Reeves, who has been under pressure this week following figures that demonstrated the stagnation of the UK economy. The focus of Labour’s political objective has been on growth, with Reeves herself admitting that the government must do more to encourage expansion in order to raise living standards.
The prospects for the world economy are described by the IMF as being “stable, albeit lacklustre”. Growth of 3.3% is forecast for both 2017 and 2018, which comes in below the historical average of 3.7%. A major topic within the IMF’s prediction centres on potential risks, given the forthcoming arrival of Donald Trump in the White House. There are concerns that an overly aggressive trade policy from Trump could have a negative impact on global trade, with the possibility of tit-for-tat measures leading to a sequence of tariff wars involving the US, the EU, China, Canada and Mexico. Among other potential factors, investors worry that over-regulation could lead to an excessive soar in the value of the US dollar, thereby sparking an exodus of money from emerging market economies and leading to huge dips in global economic growth figures
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