IMF chief Christine Lagarde urges quick Brexit to reduce economic uncertainty

UK economy 'heavily dependent' on negotiating new trade deals with EU, says Christine Lagarde

Harry Cockburn
Thursday 07 July 2016 13:22
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'We want to see clarity sooner rather than later,' Christine Lagarde said
'We want to see clarity sooner rather than later,' Christine Lagarde said

Christine Lagarde, the head of the International Monetary Fund, has urged the UK government to make a quick withdrawal from the European Union in order to reduce economic uncertainty.

The growth of the British economy will be heavily dependent on the new trade agreements the UK negotiates with the EU, Ms Lagarde said.

In an interview with the Financial Times, Ms Lagarde said: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making.”

She added that the Brexit vote was already having an impact on global growth, and had affected the IMF’s world economic forecasts.

IMF economists previously hoped to upgrade their 3.2 per cent global growth forecast, but in the wake of the UK’s referendum result, that now looked unlikely, Ms Lagarde said.

Should the UK follow the Norwegian model, in which Norway has access to the single market in exchange for free movement of people, then the UK’s economy would only shrink by 1.5 per cent by 2019, in comparison to how it would be if the UK remained in the EU, according to the IMF.

But if the UK negotiated a deal under the terms and tariffs of World Trade Organisation rules, the IMF expects to see the British economy contract by 4.5% compared to what it would have been as an EU member.

The IMF does not have a scenario for the prolonged period of uncertainty currently facing the UK, in which article 50 is not triggered and the UK remains in limbo, having voted to leave, but without beginning to do so.

“No, we do not have that,” Ms Lagarde said. “We doubt that it would be sustainable politically, geopolitically.”

The pound recovered slightly against the dollar on Thursday, breaking the $1.30 mark after dwindling to $1.28 earlier in the week.

But many analysts expect the recovery to be temporary.

Goldman Sachs has said the pound could go as low as $1.20 against the dollar in the next three months, levels not seen since the summer of 1985.

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