(Adds detail, IMF forecasts)
By David Milliken
LONDON, April 18 British finance minister Philip
Hammond said sharp gains in sterling on Tuesday after Prime
Minister Theresa May called for a snap election showed markets
wanted a stronger Conservative government to lead Brexit talks.
Sterling rose to a four-month high against the dollar in
what looks set to be its biggest one-day gain in three months -
though the British currency remains almost 15 percent below its
level before last June's Brexit vote.
In an unusually direct response to a question about the
currency, Hammond told parliament: "(The) prime minister's
statement this morning has sent sterling up ... demonstrating
the confidence that the markets have in the future, for this
country, under a Tory government with a new mandate."
The blue-chip FTSE 100 index - which tends to be inversely
correlated with the pound because of its mainly foreign-earning
constituents - closed the day down almost 2.5 percent, its
biggest fall since the days after the EU referendum.
May said on Tuesday she had been reluctant to ask parliament
to back her move to bring forward the poll from 2020, but had
decided over the past week that it was necessary to stop the
opposition "jeopardising" her work on Brexit.
"The decision that the prime minister has made today is a
decision made very much in the national interest to strengthen
her hand as she goes into the negotiation with the European
Union," Hammond told parliament.
Opinion polls show May's Conservatives have a lead of more
than 20 percentage points over the opposition Labour party.
Britain has less than two years before it leaves the EU and
needs to reach an agreement on future access to European
markets, the destination for most of its exports, as well as set
out what controls it will impose on immigration from the EU.
The International Monetary Fund said on Tuesday it was
working on the assumption that Britain and the EU would reach a
deal "that avoids a very large increase in economic barriers".
As part of a half-yearly update to its outlook, the IMF
lifted its forecast for British economic growth this year to 2.0
percent from 1.5 percent in January, bringing it in line with
the Bank of England but above many other forecasters.
IMF chief economist Maurice Obstfeld told reporters in
Washington that the snap election might create greater short-run
uncertainty, but could give greater clarity afterwards about
what the British people wanted to achieve from Brexit talks.
Last year Britain's economy beat most private-sector
economists' forecasts that it would fall into recession after
June's Brexit vote, instead growing by 1.8 percent, putting it
alongside Germany as the fastest-growing major advanced economy.
The IMF said the negative economic effects of the Brexit
vote were materialising more slowly than it had expected. But it
still expected growth to slow to 1.5 percent next year, as a
weaker currency hurt consumer spending power and political
uncertainty dampened private-sector investment.
"Though highly uncertain, medium-term growth prospects have
also diminished ... because of the expected increase in barriers
to trade and migration, as well as a potential downsizing of the
financial services sector amid possible barriers to cross-border
financial activity," it added.
(Additional reporting by David Lawder in Washington, editing by
Andy Bruce and John Stonestreet)