In its new report, the IMF predicts the UK’s gross domestic product (GDP) will grow by 1.8 percent this year ahead of the US, Germany, Japan and other members of the G7.
Prior to the June referendum, the IMF claimed a Brexit would plunge the UK into recession. It has now conceded that those warnings proved to be overly pessimistic.
However, it forecast a sharp slowdown in 2017, claiming the economy would eventually suffer from the shock of the EU referendum result. It said expansion next year would be just 1.1 percent, lower than expected in the immediate aftermath of the Brexit vote.
The IMF’s economic counsellor, Maurice Obstfeld, said the Brexit vote left the future of UK’s trade and financial relations with the other 27 EU member states unclear.
“Alongside economic anxiety and other factors, the Brexit vote reflects a resentment of cross-border migration that has fueled nationalist sentiment in Europe and called into question the way forward for EU integration,” he said.
The IMF also cautioned that economic data since the referendum had been limited and said the fall in sterling would prompt inflation to rise from 0.7 percent this year to 2.5 percent in 2017.
It also cut its medium-term growth forecast for the UK from 2.1 percent to 1.9 percent as a result of what it assumes will be barriers to trade, migration and capital flows.
The news comes after the pound hit a new 31-year-low against the US dollar on Tuesday, slumping to $1.276, falling below its post-referendum low as fears of a “hard Brexit” intensify.
Investors appear to be spooked by Prime Minister Theresa May’s announcement on Sunday that she will trigger Article 50 of the Lisbon Treaty, launching formal Brexit talks with EU leaders, before March 2017.
Her announcement has put the UK on course for a Brexit which would likely see Britain lose access to the single market as part of its plan to clamp down on immigration by 2019.