The International Monetary Fund offered a blow to the UK on Tuesday as it cut the growth forecasts for the UK economy. The UK predicted that it would expand by 1.5% this year, but they are expanding, instead, by just 1.1% in 2011. The IMF warned that the UK stands a 17% chance of falling back into a recession.
This news is certainly a blow to Chancellor George Osborne, who has signaled that he plans to trim the growth forecast that he had for 2011. The IMF warned, however, that he should also lower the predictions for 2012, not just for 2011. The IMF said that the UK is set to grow by only 1.6% next year, which is a .7% drop from its June forecast.
The Fund stated that, “There is some evidence that drops in equity prices are associated with a greater chance of a new recession in a number of economies.” The IMF continued by saying, “Although the recession has ended, many economies continue to operate far below pre-crisis trends. Output losses relative to trends are largest for economies that were at the epicentre of the crisis, such as the United States and the United Kingdom.”