The International Monetary Fund (IMF) warned on Tuesday, Britain will suffer economic damage to the equivalent of 2 to 3-years of normal growth, from now until 2021 if we crash out of the EU.
The UK is the world’s fifth largest economy and could possibly crash out with a no-deal Brexit, if Theresa May cannot agree a delay to Article 50 on Wednesday.
Should we have an orderly no-deal Brexit, with no border delays and minimal market turmoil the economy will grow 3.5% less by the end of 2021.
The IMF said, “The increase in trade barriers has an immediate negative impact on UK foreign and domestic demand.”
Britain is looking at an estimated 0.5% hit on gross domestic product, compared to a smooth Brexit, the EU will also suffer but not as much.
UK exports will face new tariffs and regulatory barriers to the EU and other countries that have EU trade deals, should the UK deal with the World Trade Organisation (WTO).
Worst case scenario of a no deal Brexit that involves border delays and financial market turmoil will increase damage to around 4% of GDP by 2021, according to the report on Tuesday.
The forecasts assumed that the Bank of England (BoE) will cut interest rates and took into account the British governments plans not to impose tariffs on most imports, in a no-deal event.
A spokesman for the UK’s finance ministry said the government wants to leave the EU with a deal in place however, they are now ready for a no-deal.
Economic growth forecast has been downgraded by the IMF for 2019 to 1.2% compared to the previous forecast of 1.5% three months ago, making it the weakest since 2009.
The IMF said, “The downward revisions reflect the negative effect of prolonged uncertainty about the Brexit outcome, only partially offset by the positive impact from fiscal stimulus announced in the 2019 budget.”
UK economy will face “dire consequences” if the country leaves the EU next year without a Brexit deal, and any deal will leave the country financially worse off than staying in, the International Monetary Fund (IMF)’s latest annual assessment of the UK economy has shown.
Expressing concern at the possibility of an acrimonious divorce next March, the IMF’s managing director Christine Lagarde added: “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.”
The IMF expects Britain’s economy to grow by about 1.5 per cent a year in 2018 and 2019 if a broad Brexit agreement is struck, compared with about 1.75 per cent if it had stayed in.
“As the IMF has said, no deal would be extremely costly for the UK as it would be for the EU,” chancellor Philip Hammond said, adding: “Despite contingency planning, it would put at risk the significant progress made over the past 10 years in repairing the economy.”