Friday 15 December 2017

IMF chief Christine Lagarde warns that Brexit will be painful for the UK

IMF chief Christine Lagarde
IMF chief Christine Lagarde

David Hughes

Separation from the European Union will not be "without pain", International Monetary Fund (IMF) chiefwarned despite the resilience shown by the British economy since the referendum vote.

Ms Lagarde said any Brexit trade deal the UK strikes with Brussels was unlikely to be as good as the current arrangements enjoyed as part of the single market.

A series of issues remained to be resolved about the UK's future trading relationship with the EU and other countries and "uncertainty is always a risk".

In its latest World Economic Outlook, the IMF said it now expects the UK economy to grow by 1.5pc this year, marking a 0.4% upward revision to forecasts made in October.

But it downgraded its UK forecasts for 2018 by 0.3%, with gross domestic product (GDP) growth for 2018 now expected to come in at 1.4%.

The "extraordinary" response by the Bank of England and the "quite remarkable" behaviour by British consumers who have continued to spend had helped the economy defy the gloomy forecasts - including by the IMF.

But at the World Economic Forum in Davos Ms Lagarde told the BBC: "Once uncertainty clears, if people feel that their ability to set up shop in the UK and operate throughout the geographical area that is the European Union is not working as well as it did, the investment decision will change.

"In the same vein, if exports are subject to significant tariffs, restrictions and so on and so forth, the ability of the UK to activate that trade engine is going to be reduced.

"So while we have upgraded our forecasts for 2017, we have downgraded for 2018 ... We are still of the view that it will not be positive all along and without pain."

Ms Lagarde echoed the views of Maltese Prime Minister Joseph Muscat, who said that any Brexit deal the UK strikes with Brussels must be "inferior" to EU membership.

She said the members of a club "have a degree of affinity and particular terms under which they operate" and "somebody outside the club ... has different access".

The future relationship the UK agrees "would certainly be different, and if being part of a club is optimising and leveraging your membership it would not be as good".

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