IMF warns over Brexit ‘spanner in works’ for UK economy

Brexit has “thrown a spanner in the works” which will hugely knock Britain’s growth prospects over the next two years, the International Monetary Fund has warned.

It cut its forecasts for UK growth by 0.2% this year and by 0.9% next year to 1.7% and 1.3%.

The news came as inflation jumped unexpectedly to an annual rate of 0.5% last month even before the expected upward pressure on prices caused by the fall in the pound since the Leave vote kicked in.

The IMF warning is likely to be another spur to the Bank of England to cut rates next month as it tries to shore up the economy.The IMF said it had been looking to upgrade its global growth projections until the June 23 vote.

“Brexit has thrown a spanner in the works,” said the IMF’s economic counsellor and head of research Maury Obstfeld. “The direct effects specifically due to Brexit are greatest in Europe, especially the UK.”

The IMF, headed by Christine Lagarde, also reduced its forecasts for global growth by 0.1% for this year and next to 3.1% and 3.4%.

It said: “Brexit-related revisions are concentrated in advanced European economies, with a relatively muted impact elsewhere, including in the United States and China.”

It said these forecasts were based on “a gradual reduction in uncertainty going forward, with arrangements between the European Union and the UK avoiding a large increase in economic barriers, no major financial market disruption, and limited political fallout from the referendum.”

However, if the effects of Brexit prove worse — with tighter financial conditions, lower confidence and a greater proportion of financial services quitting the UK — it sees a longer and deeper slowdown for Britain and the world.

The unexpected rise in inflation, according to the ONS, was largely driven by demand for flights to the Euros with air fares jumping 10.9% between May and June.