IMF: Brexit May Not Mean A British Recession

Britain need not suffer a recession if it leaves the European Union, the International Monetary Fund has said in its assessment of the risks around the referendum.

The Fund said that the UK economy would be comparatively weaker if it left the EU but under its “limited” scenario – in which Britain stayed in the European Economic Area, the group that includes Norway – growth would slip from 2.2% to 1.4% next year. The drop is significantly smaller than that forecast by the Treasury.

However, the Fund said that under an “adverse” scenario, in which the UK left the EU and failed to seal a Norway-style deal, having to fall back on World Trade Organisation rules, the UK would suffer a recession in 2017, with the economy shrinking by 0.8%.

The Fund’s conclusions about the economic impact of Brexit have been highly anticipated for the past month, since its managing director, Christine Lagarde said that they would range “from pretty bad to very, very bad”.

But while some expected it to produce forecasts similar to those produced by the Treasury, the Fund’s final report is considerably more conservative.

The Treasury has predicted a recession in both of the two scenarios it used in its modelling. It also predicted long-term damage of between 3.8% and 7.5% of gross domestic product. However, the Fund predicted that the economy would be anywhere from 1.4% to 4.5% smaller in the long-run.

The vast majority of economists predict that Britain would be weaker in the event of a Brexit, however they differ considerably about the scale of the impact.

The Fund originally intended to release the report on Friday, but held its release back by 24 hours following the death of MP Jo Cox.

2:27am 18th June 2016

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