London: The International Monetary Fund on Tuesday cut its 2017 growth forecast for Britain, blaming Brexit, and warning the damage could be greater if rocky negotiations lead to trade barriers.
The IMF said it now expects Britain's gross domestic product (GDP) to expand by 1.1 percent in 2017, a downgrade of 0.2 percentage points from the previous prediction given in July.
That marks a significant slowdown compared with its estimate for 2016, the IMF said in the latest edition of its World Economic Outlook.
The British economy is now expected to grow by 1.8 percent this year, up 0.1 percentage points from prior guidance.
"In the United Kingdom 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," the IMF said.
It added its assumptions are based on "smooth post-Brexit negotiations and a limited increase in economic barriers".
However that may not turn out the case.
The British pound crashing to 31-year dollar lows on Tuesday in the wake of weekend comments by Prime Minister Theresa May indicating willingness to leave the single market in order to secure control over immigration from the EU.
The single market gives Britain tariff-free access to the EU.
Meanwhile finance minister Philip Hammond warned Monday of "turbulence" in the British economy during the negotiations.
May also said at the weekend that Britain would start the two-year process to leave the EU by the end of March.
Britons voted in a June 23 referendum in favour of leaving the EU, sending shockwaves reverberating across financial markets.
"The unexpected vote for Brexit on June 23 leaves unclear the future shape of the United Kingdom's trade and financial relations with the remaining 27 European Union (EU) members, introducing political and economic uncertainties that threaten to dampen investment and hiring throughout Europe," it warned.
The IMF also signalled Tuesday that the British government -- which is due to unveil its budget update on November 23 -- may need to re-assess its deficit-slashing measures in a bid to bolster growth.
"As greater clarity emerges on the macroeconomic impact of the Brexit vote, the need for further near-term discretionary fiscal policy easing and the appropriateness of the medium-term deficit target should be assessed, possibly in the context of the upcoming November fiscal review," it said.
The IMF acknowledged that the Bank of England's wide-ranging stimulus programme had buoyed sentiment.
In August, the BoE slashed interest rates by a quarter-point to a record-low 0.25 percent and expanded its main quantitative easing (QE) bond-buying scheme by £60 billion to £435 billion.
The Washington-based IMF said that the BoE's stimulus plan "signals its commitment to limit post-Brexit downside risks and maintain confidence".
