IMF sees heavy hit to UK economy from Brexit
THE International Monetary Fund issued a stark warning to the UK on Wednesday, saying that a “no-deal” Brexit would slice 5pc-8pc off the country’s output over the long term, adding that it would also hurt growth prospects here in Ireland more than in any other country in Europe.
The report on the British economy spelled out the damage that had already been done by the vote to leave the European Union, which the IMF said had caused a rise in inflation, depressed consumption and hurt business investment.
“A scenario in which future trade between the UK and the EU is governed by World Trade Organization rules is estimated to bring about output losses of around 5pc to 8pc compared to a no-Brexit scenario in the long run,” the IMF said in its report.
Among EU states, Ireland’s close trading links with the UK would see it hardest hit by a no-deal with growth being hit by 3pc versus a situation where Britain had stayed in the bloc.
Bilateral trade with the UK represents 13pc of total exports and 12pc of total imports, while Britain’s transport links to Europe are a key part of the supply chain for Ireland’s exports.
The report came as British Prime Minister Theresa May prepared to present a Brexit agreement to her divided cabinet with no certainty of getting any deal through parliament.
Her government relies on support from the Democratic Unionists Party, which is opposed to any Border backstop.
Overall, the Fund sees the British economy expanding by about 1.5pc annually, barring a disorderly Brexit.
It warned the pound could fall substantially with a “no-deal”, a move that would cause pain for exporters here.
Far from delivering new funds for Britain’s public finances and the National Health Service, as leave campaigners had claimed, Brexit will shrink budget revenues, the Fund said as it estimated each 1pc point reduction in nominal economic output would cut fiscal balances by about 0.4pc point.
“While there could be some direct savings from the net contributions to the EU budget that the UK will no longer make – although it is unclear how much will be available after payments on the agreed withdrawal settlement and other Brexit-related spending – there is no ‘Brexit dividend’ to public finances, as lower fiscal revenues due to lower output more than offset any direct savings,” the report said.