IMF head: No-deal Brexit would be ‘dire’ for UK economy

17 Sep 18

A no-deal Brexit will entail “dire consequences” for the UK economy, which would rapidly start to contract, the International Monetary Fund chief has warned.

Speaking at the Treasury today, Christine Lagarde said that under any outcome, there would be costs for the UK economy –  and “to a lesser extend” the European Union as well.

In the event of a no-deal exit in March next year, Lagarde said: “If that happened there would be dire consequences. It would inevitably have consequences in terms of reduced growth, an increase in the [budget] deficit and a depreciation of the currency.

“In relatively short order it would mean a reduction in the size of the economy.”

The latest IMF annual assessment of the UK economy predicts a 1.5% growth next year, in the event of a smooth exit from the EU.

Lagarde said: “Those projections assume a timely deal with the EU on a broad free trade agreement and a relatively orderly Brexit process after that.”

She added: “Any deal will not be as good as the smooth process under which goods, services, people and capital move around between the EU and UK without impediments and obstacles.”

At the news conference at the Treasury, chancellor Philip Hammond said the government should listen to the fund’s “clear warnings”.  

He said: “As the IMF has said, no-deal would be extremely costly for the UK as it would be for the EU.

“Despite contingency planning, it would put at risk the significant progress made over the past 10 years in repairing the economy.”

The IMF said UK growth has already dropped and business investment has been lower than would be expected since the EU referendum two years ago.

ONS figures from last month showed UK GDP had risen 1.7% between 2016 and 2017, which was slightly lower than the 1.8% growth seen between 2015 and 2016.

It warned that all Brexit outcomes would be worse for the UK than the current EU membership and called for an agreement that “minimises the introduction of new tariff and non-tariff barriers [which] would best protect growth and incomes in the UK and EU”.

The Washington-based fund will publish more details on its outlook of the UK economy in November, which will look at the possible outcomes of various Brexit scenarios. 

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