COVID-19: IMF downgrades UK growth forecast as new strain holds back recovery

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The IMF has downgraded the UK's economic growth forecast for this year as the new strain of the COVID-19 pandemic takes its toll.

Britain's GDP is expected to grow by 4.5% in 2021, down from a previously predicted 5.9%, according to the International Monetary Fund's latest World Economic Outlook.

It suggests the UK's pandemic-battered economy will recover more slowly - having shrunk by an estimated 10% last year - than other advanced nations such as the US.

Overall global growth for 2021 is pencilled in at 5.5%, an upgrade of 0.3 percentage points - reflecting the rollout of COVID-19 vaccines and economic stimulus policies.

IMF chief economist Gita Gopinath said that in the UK, after a second wave of COVID-19 took its toll towards the end of 2020, a further resurgence this year had delivered a fresh blow.

"Now there is a third wave with the new strain of the virus which is leading to more prolonged restrictions in movement and that is one of the reasons why we have the downgrade," she said.

In the US, where President Joe Biden is planning a new $1.9trn package for the economy, the growth outlook for this year has been upgraded by two percentage points to 5.1%.

Both the US and Japan - which is still determined to hold the Olympics this summer - are expected to return to levels last seen at the end of 2019 by the second half of this year, the IMF said.

But the report said that in the euro area and the UK, "activity is expected to remain below end-2019 levels into 2022".

"The wide divergence reflects to an important extent differences across countries in behavioural and public health responses to infections, flexibility and adaptability of economic activity to low mobility, pre-existing trends, and structural rigidities entering the crisis," the IMF said.

On the plus side for the UK, the outlook for 2022 has been upgraded by 1.8 percentage points to 5% - ahead of all other advanced economies.

The IMF said its projections were subject to "exceptional uncertainty".

New restrictions following recent increases in COVID-19 cases could mean growth is weaker than predicted in the early part of the year, it said.

The report said the Brexit agreement had eliminated the key "downside risk" of a no-deal though Ms Gopinath said Britain's departure from Europe would still knock an expected 1% off UK growth in the first quarter.

Britain's economic downgrade comes on the same day latest official figures showed that, in the three months to November, unemployment climbed to 5% for the first time in more than four years.

Meanwhile, recent business survey data has pointed to Britain's economy shrinking in January at the fastest pace since May, as the latest lockdowns take their toll.

That has added to fears that the UK economy will have suffered a so-called "double-dip" recession as a result of the pandemic.