David Prosser: Gloomy tidings from the IMF

Outlook So it's good news and bad from the International Monetary Fund. Its latest projections for the global economy as a whole are a little bit more optimistic than the forecasts it made back in April. Sadly, it is not so upbeat about the UK: its estimates for economic growth in this country have been trimmed.

What lies behind the downgrade of the UK? The IMF does not explicitly say so, but it is pretty clear that the lower growth forecasts reflect its assessment of the impact of last month's emergency Budget. Like the Office of Budget Responsibility, it has lowered its expectations for our economy on the basis that spending cuts will now be larger and come sooner than previously expected.

We saw something similar from the Organisation for Economic Co-operation and Development (OECD) earlier in the week. It warned that the outlook for unemployment in this country was now much bleaker than it had been prior to the Budget – picking up, albeit unwittingly, on the controversy of last week over joblessness.

What's particularly interesting about the latest IMF report is that while cautioning about the risks of further financial turbulence in the eurozone, it seems to regard fiscal tightening as the greater immediate challenge to economic recovery. Not that it is suggesting the tightening planned in the UK and elsewhere is inappropriate – quite the reverse, in fact – but the warning is there nonetheless.

In short, the IMF thinks Europe is broadly in the right place on austerity measures, but that this action will do real damage to its economy. Throw in another round of eurozone crisis, a very real risk it says, and the damage would be really severe. On reflection, more bad news than good then.