IMF says Brexit 'bad to very, very bad'


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The International Monetary Fund chief has said a vote by the UK to leave the European Union would have “pretty bad, to very, very bad” consequences.

Christine Lagarde said she had “not seen anything that’s positive” about Brexit and warned that it could “lead to a technical recession”.

She echoed similar comments made on Thursday by Bank of England governor Mark Carney.

Vote Leave said the IMF had been wrong in the past and was “wrong now”.

The IMF said in a report on the UK economy that a leave vote could have a “negative and substantial effect”. It has previously said that such an outcome could lead to “severe regional and global damage”.

The Fund said a Brexit vote would result in a “protracted period of heightened uncertainty” and could result in a sharp rise in interest rates, cause volatility on financial markets and damage London’s status as a global financial centre.

Ms Lagarde said the IMF had a duty to assess the risks of Brexit. It has a mandate to oversee the international monetary and financial system.

The Fund is expected to publish detailed estimates of the economic impact of a vote to leave the EU in the week before the 23 June referendum, the timing of which has been criticised by leave campaigners.

It was not just a domestic issue but an international one as well, Ms Lagarde told a briefing at the Treasury attended by the Chancellor, George Osborne.

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“I don’t think that in the last six months I have visited a country anywhere in the world where I have not been asked ‘what will be the economic consequences of Brexit?” she said.

‘Heck no!’

Trade and economy

The debate

  • About half of UK trade is conducted with the EU
  • The EU single market allows the free movement of goods, services, capital and workers
  • Trade negotiations with other parts of the world are conducted by the EU, not individual member states

Leave

  • UK companies would be freed from the burden of EU regulation
  • Trade with EU countries would continue because we import more from them than we export to them
  • Britain would be able to negotiate its own trade deals with other countries

Remain

  • Brexit would cause an economic shock and growth would be slower
  • As a share of exports Britain is more dependent on the rest of the EU than they are on us
  • The UK would still have to apply EU rules to retain access to the single market


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Asked if the Treasury had had any input into the IMF’s conclusions, Ms Lagarde responded: “Heck no! If you are suggesting that, you don’t know the IMF.”

Priti Patel MP, who is backing the leave campaign, said the IMF was “wrong then and they are wrong now. It appears the Chancellor is cashing in favours to Ms Lagarde in order to encourage the IMF to bully the British people.”

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Lord Lamont, a former chancellor, said: “This daily avalanche of institutional propaganda is becoming ludicrous and pitiful. Important institutions are being politicised and used to make blood-curdling forecasts.

“There are plenty of respected individual economists, plenty of respected professional investors, and plenty of entrepreneurs who take a very different view from Christine Lagarde and who have probably been better at foreseeing the future than the IMF.”

Britain Stronger in Europe chairman Lord Rose said: “This is yet another economic expert that agrees Britain is stronger in Europe, adding to the comments of the Bank of England.”

Former Treasury minister Lord Myners, who backs staying in the EU, added: “Every major independent economic institution, from the Bank of England to the IMF, has made it clear that leaving the EU would damage the UK economy. This is yet more evidence that leaving is a risk we cannot afford to take.”

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Image caption

Priti Patel MP accused the IMF of ‘bullying’ UK voters

The Fund said it expected UK growth to fall below 2% for the full year in 2016 before returning to an average of 2.25% over the medium term.

However, the IMF said that this “broadly positive” forecast was subject to notable risks, the biggest of which was the EU referendum, but also the low level of household savings, high levels of household debt, a wide current account deficit and concerns that productivity growth will not rise significantly.

Concerns about a possible Brexit may have affected UK markets in recent months, according to the Fund.

It pointed to a 40% decline in the number of commercial real estate transactions in the first three months of the year.

Deciding whether to remain in the EU was a choice for voters to make, the IMF said, adding that “their decisions will reflect both economic and non-economic factors”.



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