IMF: Brexit would trigger UK recession
Leaving the EU would hit British living standards, stoke inflation and wipe up to 5.5 percent off GDP, the International Monetary Fund has warned with less than a week to go until the referendum.
The IMF used its annual report on the British economy to say Brexit would plunge the UK into recession next year and that it could see no economic advantage in leaving the EU, the Guardian reported.
Previous IMF interventions have drawn an angry response from leave campaigners who have already said the fund should not interfere in the UK’s democratic process. The leave camp has also attacked its record on economic forecasting.
Responding to the latest IMF remarks, Matthew Elliott, chief executive of Vote Leave said: “The IMF has chosen to ignore the positive benefits of leaving the EU and instead focused only on the supposed negatives. If we vote leave, we can create 300,000 jobs by doing trade deals with fast growing economies across the globe. We can stop sending the £350 million we pay Brussels every week. That is why it is safer to vote leave.”
The IMF said last month that Brexit could spark a stock market crash and a steep fall in house prices. In Saturday’s report to conclude its annual assessment of Britain’s economy, it added that a leave vote would tie the UK up in trade negotiations that could drag on for years.
The resulting uncertainty would hit spending and financial markets, it said, estimating that even under a relatively benign scenario in which the UK negotiated a trade status similar to that between Norway and the EU, output would fall by 1.5 percent by 2019, compared with where it would be under continued EU membership.
It modeled a less favorable outlook, in which GDP would fall more steeply. “In the adverse scenario of long negotiations and a default to the trade rules of the World Trade Organization, GDP plunges by 5.5 percent by 2019,” it said.
Under that scenario, the UK would fall into recession in 2017, IMF officials said. “The implication would be negative growth in 2017,” said one official briefing reporters in a conference call.
In a baseline scenario in which the UK remains in the EU, growth would be expected to recover in late 2016, as the effects of the referendum waned. But the IMF’s experts also forecast various threats to the UK economy beyond the closely fought vote.
They included Britain’s relatively weak trade position, with a record current account deficit last year. There was also uncertainty about the degree to which the UK’s poor productivity growth would recover and risks associated with the UK’s ‘buoyant’ property market.
The IMF, which has warned of a slowdown in the global economy, urged British policymakers to be on alert for economic shocks and even raised the prospect of a UK interest rate cut.
The report said: “In the event of protracted demand weakness and inflation undershooting, monetary and fiscal policies should be eased, taking into account the benefits and potential costs of such a move.
“Conversely, monetary tightening may need to be initiated earlier than currently envisaged if core inflation or wage growth in excess of productivity growth begins to rise sharply.”
In the near term, the main risk to Britain’s economy was next week’s referendum, the fund’s directors said. “While recognizing that this choice is for UK voters to make and that their decisions will reflect both economic and non-economic factors, directors agreed that the net economic effects of leaving the EU would likely be negative and substantial,” they said in a press release accompanying the report.