No-deal Brexit will hit UK economy hard, warns IMF

PUBLISHED: 18:18 14 November 2018 | UPDATED: 18:18 14 November 2018

International Monetary Fund managing director Christine Lagarde has given a stark warning over the hit the UK economy will take if there is a no-deal Brexit
Photo: PA / Stefan Rousseau

International Monetary Fund managing director Christine Lagarde has given a stark warning over the hit the UK economy will take if there is a no-deal Brexit Photo: PA / Stefan Rousseau

PA Archive/PA Images

The International Monetary Fund has warned Theresa May the UK economy will suffer a brutal hit if the country crashes out of Europe.

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

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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.

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.

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