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IMF upgrades UK after better-than-expected growth following Brexit vote

One of the world's leading economic organisations has raised its growth forecast for the UK after figures were stronger than forecast in the second half of 2016.

In an update to its global growth projections, the International Monetary Fund (IMF) said domestic demand in the United Kingdom "held up better than expected in the aftermath of the Brexit vote".

But it also cautioned that the instability surrounding Britain's terms of exit for the EU could have adverse effects on both short and long term projections.

The IMF now expects the UK economy to grow by 1.5% this year, up by 0.4 percentage points compared to its previous forecast in October.

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Meanwhile growth for 2016 is pencilled in at 2%, up from 1.8%.

However the forecast for 2018 has been cut to 1.4%, from a previous 1.7%.

IMF chief economist Maurice Obstfeld said: "In Europe, Britain's terms of exit from the European Union remain unsettled and the upcoming national election calendar is crowded, with possibilities of adverse economic repercussions, in the short and longer terms."

The data collected in the IMF report suggests that the global economic landscape started to shift in the latter part of last year and world growth will "pick up from last year's lacklustre pace in 2017 and 2018".

The agency now expects global growth to rise to a rate of 3.4% in 2017 and 3.6% in 2018 from a 2016 rate of 3.1%. This was the weakest pace since 2008-9.

The change to the outlook has stemmed from stronger activity but also a projected fiscal stimulus from the United States when President-elect Donald Trump takes over in the White House.

Many commentators expect the country's fiscal policy will turn more expansionary and lead to faster interest-rate increases by the Federal Reserve.

With (Other OTC: WWTH - news) the White House and Congress in the hands of the same party for the first time in six years, some view that as pointing to lower tax rates and perhaps more spending on infrastructure and defence.

However, while a changing policy under a new administration might bring some positives, the IMF has warned of notable negative risks and a high level of uncertainty surrounding Trump becoming President.

The organisation said the risks "include a possible shift toward inward-looking policy platforms and protectionism" and its forecast for the United States "is the one with the highest likelihood among a wide range of possible scenarios".

While growth projections have been revised upwards for the short-term, at the same time the IMF "see a wider dispersion of risks, with those risks still tilted to the downside. Uncertainty has risen."

The report also highlights the problem posed by attitudes towards immigration and antipathy toward trade and multilateral engagements in the United States and Europe.

This trend of protectionism and isolationism is seen as bringing potential vulnerabilities and the IMF stress that a key lesson to be taken away from 2016 is "sustainable growth must also be inclusive growth".