The International Monetary Fund has warned that a “no-deal” Brexit on World Trade Organization terms would entail “substantial costs” for the UK economy.
The IMF said that all likely Brexit scenarios would “entail costs”, but a disorderly departure could lead to “a significantly worse outcome”.
The challenges in getting a deal done were “daunting”, it said.
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The IMF expects Britain’s economy to grow by 1.5% in both 2018 and 2019 if a broad Brexit agreement is struck.
The predictions came in the IMF’s latest annual assessment of the UK economy.
Speaking at a news conference at the Treasury in London, Christine Lagarde, the IMF’s managing director, added: “Those projections assume a timely deal with the EU on a broad free trade agreement and a relatively orderly Brexit process after that.
“Any deal will not be as good as the smooth process under which goods, services, people and capital move around between the EU and the UK without impediments and obstacles.”
A no-deal outcome would affect other EU economies “to a lesser extent”, the IMF said.
Ms Lagarde said a “disorderly” or “crash” exit from the EU would have a series of consequences, including reduced growth, an increased deficit and depreciation of sterling, leading to a reduction in the size of the UK economy.
“The larger the impediments to trade in the new relationship, the costlier it will be,” she said.
“This should be fairly obvious, but it seems that sometimes it is not.”
She pointed out that countries tended to trade mostly with their neighbours, adding: “I think geography talks very loudly.”
‘Clear warnings’
Ms Lagarde said she “very much” hoped that the UK and the EU would strike a deal, describing herself as “a desperate optimist”.
UK Chancellor Philip Hammond said the government had to listen to the IMF’s “clear warnings”.
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He added: “The IMF are clear today that no deal would be extremely costly for the UK as it would also for the EU, and that despite the contingency actions we’re taking, leaving without a deal would put at risk the substantial progress the British people have made over the past 10 years in repairing our economy.”
Recent UK economic data has shown a pick-up in growth. Earlier this month, the Office for National Statistics said the economy had grown by 0.6% over the three months to July – the fastest pace in almost a year.
The latest IMF prediction represents a slight upgrade for 2018. In July, the IMF said the UK economy would grow by 1.4% this year and 1.5% in 2019.
Source: BBC