Following many other analysts’ recent leads, the International Monetary Fund lifted its 2016 GDP forecast for the United Kingdom, in the latest sign that negative effects from the Brexit may not be nearly as bad as originally feared.
Still, the IMF sees slower growth for the U.K. next year. From Bloomberg:
In its World Economic Outlook published Tuesday, the Washington-based lender predicted growth of 1.8 percent instead of the 1.7 percent projected in July. That would make it the fastest-growing economy in the Group of Seven. The IMF cut its 2017 forecast to 1.1 percent from 1.3 percent and noted its estimates depended on smooth negotiations with the EU.
“Slower growth is expected since the referendum as uncertainty in the aftermath of the Brexit vote weighs on firms’ investment and hiring decisions and consumers’ purchases of durable goods and housing,” it said.
The move marks a reversal of course from the IMF’s dire predictions ahead of the Brexit vote back in June. Back then, IMF Managing Director Christine Lagarde warned that “the economic risks of leaving are firmly to the downside,” and noted the move could plunge the country into a deep recession.
That clearly hasn’t happened, however. England’s economy has seemed to firm up, and finance experts are taking note. In recent weeks, analysts from the Bank of England, OECD, Morgan Stanley, and Goldman Sachs were among the pundits painting a rosier picture for a post-Brexit United Kingdom.
The IMF concluded by stating that no one really knows what the endgame of the Brexit will be:
“Brexit is very much an unfolding event — the long-term shape of relations between the United Kingdom and the European Union, and the extent to which their mutual trade and financial flows will be curtailed, will likely become clear only after several years,” the IMF said.
For now, at least, the implications don’t seem nearly has bad as many had feared.
The iShares MSCI UK Index Fund (NYSE:EWU). The largest U.S.-listed ETF focused on British equities has fallen 0.96% year-to-date.