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16th May 2022

IMF: Brexit would cause severe damage

  • IMF chief Christine Lagarde (r) and British PM David Cameron (l). A Brexit would pose "major challenges for both the United Kingdom and the rest of Europe", the fund said. (Photo: IMF)

The usually dry analysis by the International Monetary Fund (IMF) has become the centre of a heated debate in the UK after it said on Tuesday (12 April) that a British exit from the EU would do "do severe regional and global damage".

The IMF has been accused of scaremongering by pro-Brexit campaigners, but the UK government said the British people should listen to the Washington-based institution's "stark warning".

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In its biannual World Economy Outlook, the IMF said that a Brexit after the 23 June referendum on the UK's EU membership "could do severe regional and global damage by disrupting established trading relationships".

The IMF said that the referendum itself "has already created uncertainty for investors".

A vote for Brexit would pose "major challenges for both the United Kingdom and the rest of Europe", the fund said.

"Negotiations on post-exit arrangements would likely be protracted, resulting in an extended period of heightened uncertainty that could weigh heavily on confidence and investment, all the while increasing financial market volatility," it explained.

It added that a UK exit from the EU's single market "would also likely disrupt and reduce mutual trade and financial flows".

The fund also noted in its report that between last August and February this year, the British pound depreciated by 7 percent, partly over concerns about a potential exit from the EU.

'Storm on our horizon'

"This is a stark warning that should ring loudly in the ears of families and businesses across the country," British prime minister David Cameron said after the report's publication.

“There is a storm on our horizon. We can hear the thunder if we are willing to listen. But it is in our power to protect ourselves.”

His finance minister George Osborne said the IMF was giving "the clearest independent warning of the taste of bad things to come" in case of Brexit.

He asked: “If the British economy is hit by the mere risk of leaving the EU, can you imagine the hit to people’s income and jobs if we did actually leave?”

In its report, the IMF predicts a 1.9 percent growth in 2016 and 2.2 percent in 2017, above the growth forecast for the whole EU.

Leaders of the Brexit campaign dismissed the IMF's warning, saying the fund's predictions were not reliable and that they were politically motivated.

Norman Lamont, a former chancellor of the Exchequer under Margaret Thatcher, said the fund was "closely connected" to the EU and the eurozone.

"Just two years ago, the chancellor [Osborne] was arguing the IMF's forecasts were far too pessimistic and shouldn't be heeded, and he was right to do so. They were wrong then, and they are wrong now," he said.

"The idea that leaving the European Union would cause a disruption to trade is purely alarmist. The bigger risk to the UK is remaining inside an EU which is taking more and more control, and which cannot cope with the challenges facing it."

'Cosy EU cartel'

The MEP and leader of the eurosceptic Ukip party Nigel Farage said the IMF had been "hijacked by the architects of the failing EU project".

"This is all about the big banks and the establishment protecting their interests within a cosy EU cartel that looks after multinational corporations and dismisses the democratic wishes of the average man, woman or small and medium sized business," he said.

The leader of the Vote Leave campaign, Matthew Elliott, said remaining in the EU was “the biggest risk to the UK’s economy and security” because the union was “institutionally incapable of dealing with the challenges it faces, such as the euro and migration crises”.

Last month, the Moody's rating agency said that while "the economic costs of the UK leaving the European Union would outweigh the potential benefits", the impact on credit would be "manageable".

"Both the UK and the EU would want to avoid an unnecessary large-scale disruption to trade and capital flows, given their deep economic and financial ties," Moody's said.

According to the latest opinion polls, the leave side is slightly ahead with an average of 43 percent support against 42 percent for those wanting to remain in the EU.

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