IMF Cuts U.K. Forecast, Says Fiscal Squeeze May Need to Slow

The International Monetary Fund cut its U.K. economic growth forecast for this year and next and said the government may need to consider delaying some of its deficit-reduction measures if conditions deteriorate.

Gross domestic product will rise 1.1 percent this year and 1.6 percent in 2012, the Washington-based IMF said in its World Economic Outlook today, cutting a previous projection for 1.5 percent and 2.3 percent respectively.

“If activity were to undershoot current expectations, countries that face historically low yields should also consider delaying some of their planned adjustment,” the IMF said, citing the U.K. and Germany as examples. “Everywhere, fiscal consolidation should be supported by structural measures to bolster growth prospects.”

The fund also lowered its forecast for global growth and predicted “severe” repercussions if Europe fails to contain its debt crisis or if there is a deadlock among U.S. policy makers on fiscal consolidation. IMF Managing Director Christine Lagarde earlier this month urged U.K. Prime Minister David Cameron to be in a state of “heightened readiness” in case the economy weakens further.

The world economy will expand 4 percent this year and next, the IMF said, compared with June forecasts of 4.3 percent and 4.5 percent respectively. The 2011 U.S. growth projection was cut to 1.5 percent from 2.5 percent in June.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net