IMF warns of 8% GDP fall if UK does not agree Brexit deal

IMF Legare

The British economy could take a hit of up to 8% if there is no Brexit deal, the International Monetary Fund (IMF) has warned.

In its assessment of the various Brexit outcomes, the IMF said the level of gross domestic product (GDP) is estimated to be between 5% and 8% lower if the UK leaves the EU without a free trade deal.

This is compared to the projections for a scenario in which the UK remains in the EU.

The estimates assume a transition to World Trade Organisation (WTO) rules, which would mean higher tariffs on goods trade between the UK and EU.

Under a free trade agreement, Britain’s GDP would likely fall by between 2.5% and 4%, according to the report.

Speaking on Wednesday, IMF managing director Christine Lagarde said a no-deal Brexit would “impose a very large cost on the UK economy”.

The IMF said without a deal, a significant increase in trade barriers “will lead to lower production, investment and exports”.

Financial services are expected to be particularly hard-hit by disruption due to contractual and operational challenges.

A sharp decline in confidence following a no-deal exit would also raise the risk of a period with higher inflation but lower earnings and GDP.

Further weakness in the pound would also hit household real incomes, while property prices would likely drop.

In addition, the no-deal scenario could have negative economic consequences for the rest of the EU due to higher trade barriers and a possible increase in the cost and availability of financial services.