No-deal Brexit would cost UK economy, warns global lender

International Monetary Fund Managing Director Christine Lagarde [Reuters]
The International Monetary Fund has warned that a “no-deal” Brexit on World Trade Organisation terms would entail “substantial costs” for the UK economy.

Such an outcome would affect “to a lesser extent” other EU economies.

It said challenges in getting a deal done were “daunting” and warned against further UK interest rate rises.

The IMF said it expected Britain’s economy would grow by about 1.5 percent t a year this year and 2019 if a broad Brexit agreement was struck.

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The IMF’s Managing Director Christine Lagarde added: “Those projections assume a timely deal with the EU on a broad free trade agreement and a relatively orderly Brexit process after that.”

The IMF said that all likely Brexit scenarios would “entail costs for the UK economy”, but that a disorderly departure could lead to “a significantly worse outcome”.

Smooth process

Speaking at a news conference at the Treasury in London, Ms Lagarde said: “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.”

She 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.

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‘Geography talks’

“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.”

Ms Lagarde said she “very much” hoped that the UK and the EU would strike a deal, describing herself as “a desperate optimist”.

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UK Chancellor Philip Hammond said the government had to listen to the IMF’s “clear warnings”.

He added: “The IMF is 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 per cent 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 per cent this year and 1.5 per cent in 2019.

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International Monetary FundUKEU economiesChristine LagardeBrexitUK ChancellorPhilip Hammond