IMF warns no-deal Brexit could mean major UK economy contraction

22 Jan 19

A no-deal Brexit could knock as much as eight percentage points off Britain’s GDP growth, the IMF’s chief economist has warned.

The UK economy is predicted to grow at a rate of 1.5% of GDP for 2019 in the IMF’s global economic outlook, released yesterday.

It is the same as the IMF’s previous forecast and assumes the UK will leave the European Union in March with a deal.

But Gita Gopinath, IMF chief economist, suggested to the World Economic Forum in Davos, Switzerland, yesterday that recent events in the UK parliament could mean a no-deal Brexit was more likely.

“As of mid-January, the shape that Brexit will take remains highly uncertain,” she said. 

Parliament has this month voted down Theresa May’s EU exit plan and yesterday the prime minister reiterated to the House of Commons she would not take ‘no-deal’ off the table.

May also said yesterday she would not extend the leaving date of 29 May and is currently amending her plan to bring it back to parliament for another vote next week.

“We have done our estimates of how costly it would be on the British economy to have a no-deal Brexit, which would be a decline of long-run GDP of about five to eight percentage points,” Gopinath told the forum. “That would be quite significant.”

She added “It is absolutely essential that [the Brexit] uncertainty is resolved sooner rather than later.”

The UK’s Autumn budget could help offset any potential negative economic effects of Brexit, Gopinath suggested.

The no-deal departure could also harm the global economic outlook, the IMF outlook said. Global growth is set to slow to 3.5% in 2019, although this could be slashed further in the case of a no-deal.

The UK prime minister Theresa May is not attending this year as she remains at home to deal with the Brexit issue.

The Bank of England also said last year that a “disorderly Brexit” could shrink the economy by 9.3% over the next 15 years.    

In September IMF managing director warned that a no-deal Brexit would entail “dire consequences” for the UK economy.

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