No matter the outcome, leaving the European Union will cost Britain, according to Christine Lagarde, managing director of the International Monetary Fund (IMF). And a disorderly Brexit would have “dire consequences”.
Expressing the IMF’s growing concern at the possibility of an acrimonious divorce next March, Lagarde said: “If that happened there would be dire consequences. It would inevitably have consequences in terms of reduced growth, an increase in the [budget] deficit and a depreciation of the currency.
“In relatively short order it would mean a reduction in the size of the economy.”
‘All likely Brexit scenarios will have costs’
The IMF’s warning came in the preliminary findings of its annual health check of the UK economy. The Washington-based organisation will publish details of the size of a UK recession in the event of a disorderly Brexit when it publishes the final report in November.
Speaking at a press conference at the Treasury, Lagarde said: “Our projections assume a timely agreement with the EU on a broad free-trade pact and a relatively smooth Brexit process after that. A more disruptive departure will have a much worse outcome. Let me be clear: compared with today’s smooth single market, all the likely Brexit scenarios will have costs for the UK economy, and to a lesser extent for the EU as well. The larger the impediments to trade in the new relationship, the costlier it will be. This should be obvious, but it seems that sometimes it is not.”
Asked if she saw anything positive coming out of Brexit, Lagarde said: “I see a lot of negatives. If all the uncertainties were removed it would be better. It is bad for the economy to have this amount of uncertainty.”
As reported by the Guardian, Lagarde said the IMF’s forecast of 1.5% growth next year was based on a smooth exit from the EU. Her remarks were seized upon by the chancellor, Philip Hammond, as evidence that the UK had to strike a deal that would safeguard jobs and prosperity.
“As the IMF has said, no deal would be extremely costly for the UK as it would be for the EU,” Hammond said. “Despite contingency planning, it would put at risk the significant progress made over the past 10 years in repairing the economy.”
However, Number 10 refused to endorse Hammond’s gloomy predictions. When asked about what he had said, British Prime Minister Theresa May’s spokesman referred to what May told the BBC in an interview broadcast earlier: “The PM said very clearly that she believes our best days are ahead of us and that we will have plans in place for us to succeed in all scenarios.”