Room for more UK rate cuts, says IMF
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Your support makes all the difference.BRITAIN SHOULD be able to cut interest rates further over the next few months to boost growth, the International Monetary Fund said yesterday.
In its semi-annual report on the world economy, the IMF painted a gloomy forecast of economic conditions in Europe, Japan and South America, and said that only continued strong growth in the US would hold up world expansion.
But it warned of growing concern over the downside risks for next year, and said the world economic slowdown could enter a third year.
Britain was probably past the worst of its slowdown, the IMF's chief economist, Michael Mussa, said. The Fund cut its forecast for economic growth in Britain to 0.7 per cent for this year - below Treasury predictions but in line with private sector thinking, Mr Mussa said. That is a forecast reduction of 0.5 percentage points from its December outlook. The IMF sees growth rising by 2.1 per cent next year, again less than originally forecast and well below the euro area average.
There will be room for the Bank of England to make further interest-rate cuts, said Mr Mussa. "That would be my guess, that we will see some further cuts in interest rates."
Sterling is expected to decline against the euro, the Fund said, as the dollar also weakens. "Sterling is currently, relative to its performance over most of this decade, unusually appreciated," he said. "Over time, sterling is likely to correct downward against the euro."
The Fund also cut its growth forecasts for the other European economies, Japan, developing nations and the countries in transition in central and eastern Europe for this year. But it raised its estimate of US growth to 1.9 per cent for this year and forecast roughly the same in 2000, allowing it to maintain its forecast for world economic growth at 2.3 per cent for this year, with a more robust 3.4 per cent next year.
But the IMF admitted there was an uncertain balance of risks for 2000. There were big questions over whether the US could manage a soft landing; Europe's recovery was uncertain; the Russian economy was full of question marks; and it was not clear what the effects of the Brazilian crisis would be.
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