EU Referendum: IMF warns Brexit could push UK back into recession

An exit by Britain would likely lead to reduced trade and financial flows with other EU members

Maria Danilova
Saturday 18 June 2016 00:46
Christine Lagarde of the IMF
Christine Lagarde of the IMF

A UK vote to leave the European Union would seriously hurt the British economy and possibly lead to a recession next year, the International Monetary Fund warned Friday.

An IMF report estimated that were Britain to leave the EU, its economy could contract by as much as 0.8 per cent in 2017. In 2019, economic output could be up to 5.5 percent lower to what it would be if the country remains in the 28-member EU.

While the Washington-based IMF cautioned that the decision was for the British voters to make, IMF experts believe that "the net economic effects of leaving the EU would likely be negative and substantial."

An exit by Britain would likely lead to reduced trade and financial flows with other EU members, lower investment and consumer confidence and higher financial market volatility. All this could prompt major financial firms to relocate from London.

"Such effects could over time erode London's status as Europe's preeminent financial center," the IMF said.

If the UK leaves, it would no longer be obligated to make mandatory financial contributions to the EU. But those savings will likely be offset by losses triggered by a decline in trade and investment, the report said.

The IMF also said that leaving the EU will trigger a lengthy, complicated and uncertain process of negotiating new trade terms with EU members and Britain's other trading partners, which in itself could decrease investor confidence and shake markets.

On the other hand, were Britain to remain the EU, that would help dissipate uncertainty and could support a rebound in growth of some 1.9 percent this year, according to the Fund.

Matthew Elliot, the chief executive of Vote Leave dismissed the IMF report as its "latest intervention in the referendum debate" and said it ignores the positive aspects of leaving the EU, such as job creation and saving government funds.

"If we Vote Leave we can create 300,000 jobs by doing trade deals with fast growing economies across the globe," Elliot said in a statement. "We can stop sending the >350 million we pay Brussels every week. That is why it is safer to Vote Leave."


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