The International Monetary Fund has warned the upcoming Brexit vote and the housing market both threaten to derail the UK’s recent economic progress.
In a note issued on Wednesday, the crisis lender highlighted that Britain’s economic engine had been growing steadily in the wake of decent private domestic demand, supported by rapid job growth, with unemployment falling to 5.1 per cent in late 2015.
In the medium term it expects GDP expansion to continue and to average around 2.2 per cent.
The IMF also anticipates that inflation, running at a very low 0.3 per cent in January, will pick-up slowly as disinflationary effects from past commodity price falls and sterling appreciation ease and wages rise.
However, it believes this relatively benign scenario is “subject to risks and uncertainties, including those related to the global outlook, sluggish productivity growth, a weak external position, still-high levels of household debt and the forthcoming referendum on EU membership”.
The UK will go to the polls on 23 June and the IMF is urging authorities to remain vigilant to the challenges ahead and to continue their efforts “to promote growth and further boost resilience”.
In addition it emphasised that ensuring the safety of the UK financial sector “is critical for maintaining domestic and global financial stability”.
However, notwithstanding some recent deceleration in house prices and efforts to boost supply and contain housing-related risks, the IMF says house price pressures remain elevated, posing continued challenges.
IMF directors stressed the buoyant housing market requires ongoing efforts to “contain macroprudential risks and address long-standing supply problems”.
They note that further measures may be necessary if the reduction in high loan-to-income mortgages does not continue.
Directors are also encouraging the authorities to extend the Financial Policy Committee’s powers of direction to the buy-to-let market to mirror those they currently have over the owner-occupied market.
The organisation also says ongoing efforts to reduce housing supply constraints, such as changes to planning processes, have improved prospects for increasing supply but require continued attention to implementation.