IMF: Deal With EU Key to UK Outlook Post Brexit
–Brexit, WTO Option Would Knock 5.5% Off UK GDP By 2019
LONDON (MNI) – If the UK electorate opts to leave the European Union in the June 23 referendum, the outlook for the economy could hinge on what trade deal the country can strike with the EU, the International Monetary Fund said in a report released Friday.
In the annual review of the UK economy, known as the Article IV consultation, the IMF said the UK economy had performed reasonably well in recent years, but growth had slowed in recent months, apparently weighed by uncertainty ahead of the EU vote. And the IMF warned it is unlikely the uncertainty would be lifted following a vote to leave until the details of a new trade deal with the EU were in place.
If the UK negotiates a deal similar to Norway’s, in which it abides by EU trade rules including free movement of labour, the impact would be modest. If it ends up operating under World Trade Organisation rules, with no special deal with the EU, the hit to the UK economy would be heavy, in the IMF’s view.
Under the Norway option the hit to output by 2019 would be 1.5%, under WTO rules it would be 5.5%.
A recent poll found a majority of the UK electorate would back the Norway option, with the “remain” camp accepting as the best alternative if there is a vote to leave and some “leave” voters also prepared to endorse it.
A big question mark in UK politics is whether a Norway option could be sold to the swathe of the UK electorate which is backing Brexit to restrict immigration.
The IMF warns that UK trade negotiations following Brexit, with the EU and 60 non-EU economies “could drag on for years, leading to a period of heightened uncertainty and risk aversion.”
The IMF previously released the key conclusions of its Article IV work on the UK, but Friday’s report puts numbers on the impact of Brexit.
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