The International Monetary Fund (IMF) has sharply downgraded its 2021 growth forecast for the United Kingdom.
The IMF on Tuesday slashed 1.4 percentage points off a prediction made last October, saying it now expects the UK economy to expand by only 4.5% in 2021. At the same time, the forecast for 2022 was upgraded and the IMF said it expects expansion of 5% next year.
The 2021 downgrade was included in the international organisation’s biannual World Economic Outlook. The UK suffered one of the sharpest downgrades among advanced economies, behind only Canada and Spain.
Expectations for global GDP growth were upgraded by 0.3 percentage points, supported by a 2 percentage point increase in expectations for US economic growth.
The IMF did not break out country specific reasons for its projections but said in general that forecasts were impacted by “renewed waves and new variants of the [COVID-19] virus.”
UK scientists discovered a new strain of COVID-19 in Kent, England, in December. The strain has been found to be up to 70% more infectious that previous versions of the virus and was behind soaring infection rates in in the UK. The new strain forced Britain to return to lockdown at the start of January, with restrictions set to remain in place until at least mid-February and possibly into March. Economists say the renewed restrictions are likely to cause a double-dip recession.
“Surging infections in late 2020 (including from new variants of the virus), renewed lockdowns, logistical problems with vaccine distribution, and uncertainty about take-up are important counterpoints to the favorable news [on vaccines],” the IMF wrote.
“Much remains to be done on the health and economic policy fronts to limit persistent damage from the severe contraction of 2020 and ensure a sustained recovery.”
The IMF estimated that the UK economy shrank by 10% in 2020 due to the impact of the pandemic, behind only Spain among developed nations in the scale of economic collapse.
Watch: What is a V-shaped economic recovery?