IMF warns of ‘substantial’ economic damage from Brexit

Brexit would have “negative and substantial” long-term economic consequences for the UK, the International Monetary Fund has warned.

And Christine Lagarde, the managing director of the Fund, has echoed the words of the Bank of England governor in suggesting that a vote to leave could trigger an immediate technical recession, reports The Independent.

It is the latest international body, following the OECD, to state unequivocally that leaving the EU would be damaging for Britain’s economy.

“A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial volatility and a hit to output” the Fund argues in its latest annual Article IV analysis of the UK economy today. Among the impacts it cited a possible “sharp drop in equity and house prices [and] increased borrowing costs for households and businesses”.

Christine Lagarde, the managing director of the IMF, told journalists that Brexit would likely lead to “lower output, lower growth and higher domestic prices” and that the outcomes would range from “pretty bad to very bad”.

She added: “A technical recession is one of the probailities of the downwide risk scenario in the event of a leave vote.”

The IMF report added that fears of Brexit “already appears to be having an impact on investment and hiring decisions, with recent surveys of economic activity falling to their weakest levels in three years.”

Ms Lagarde strongly denied the reports conclusions on Brexit had been “influenced” by the Treasury. “Heck no! If you think that you don’t know the IMF” she said.

The report adds support to fears that London’s status as a global financial centre could be imperilled by Brexit as UK-based firms may lose their “passporting” rights to provide financial services to the rest of the EU and banks and clearing houses might move operations out of London.

The IMF itself has not yet released its own statistical estimates of the potential size of the hit to the UK economy from leaving the EU.

But it notes that other analyses by the likes of the Treasury, PwC and the National Institute for Economic and Social Research have estimated the damage by 2030 at between 1.5 and 9.5 per cent of GDP relative to staying in.

It said the range of views mainly reflect differing assumptions about the UK’s trade relationship with the rest of the EU post-Brexit and stresses that the overwhelming consensus of experts is that the impact of departure would not be positive.