Lagarde: No-deal Brexit would hit EU members as well as UK

17 Sep 18

There will be economic costs for remaining EU countries as well as the UK if there is a ‘no-deal’ Brexit next year, the head of the International Monetary Fund has warned.

Christine Lagarde, speaking at the UK Treasury this morning, said there would be “dire consequences” for the UK if it did not manage to secure a deal with the EU by the time it leaves the union next March.

She predicted there would be costs to European members, even if to a “lesser extend”.  

Although, she also warned there will be some economic costs for the UK and EU even without a deal.

“All the likely Brexit scenarios will have costs for the UK economy, and to a lesser extent the EU,” she told her audience this morning.

“Any deal will not be as good as the smooth process under which goods, services, people and capital move around between the EU and UK without impediments and obstacles.”

She added: “If that [a no-deal Brexit] happened there would be dire consequences [for the UK]. It would inevitably have consequences in terms of reduced growth, an increase in the [budget] deficit and a depreciation of the currency.

“In [a] relatively short [time] it would mean a reduction in the size of the economy.”

The IMF head added that she “hopes and prays” for a deal.

The latest IMF annual assessment of the UK economy predicts a 1.5% growth next year, in the event of a smooth exit from the EU. 

Lagarde said: “[That projection assumes] a timely deal with the EU on a broad free trade agreement and a relatively orderly Brexit process after that.”

The Washington-based fund will publish precise details of different Brexit scenarios in November. 

At the news conference at the Treasury, UK chancellor Philip Hammond said the government should listen to the fund’s “clear warnings”. 

He said: “As the IMF has said, no deal would be extremely costly for the UK as it would be for the EU.

“Despite contingency planning, it would put at risk the significant progress made over the past 10 years in repairing the economy.”

The IMF said UK growth has already dropped and business investment has been lower than would be expected since the EU referendum two years ago.

It warned that all Brexit outcomes would be worse for the UK than the current EU membership and called for an agreement that “minimises the introduction of new tariff and non-tariff barriers [which] would best protect growth and incomes in the UK and EU”.

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