IMF warns no deal Brexit will damage global economy in spite of some public optimism

  • Video report by ITV News Business and Economics Editor Joel Hills

The International Monetary Fund (IMF) has warned that if Britain leaves the European Union without a deal then global economic growth will be damaged.

In its latest assessment of the world economy, published at the World Economic Forum in Davos, the IMF has downgraded its forecasts for global growth for this year and next in response to the ongoing trade dispute between the US and China, and economic slowdowns in Germany, Italy and China.

The IMF’s job is to worry intelligently about the economic performance of countries, identifying potential risks and, in extremis, acting as a lender of last resort.

Chancellor Philip Hammond’s Budget had a 'positive impact' on the IMF thinking. Credit: PA

On its “what could possibly go wrong” list, the IMF highlights “a no deal withdrawal of the UK from the EU” as an event that could cause global growth to shrink further, alongside an “escalation of trade tensions” and “greater than envisaged slowdown in China".

Growth of 1.5% is pencilled in for the UK in 2019, higher than in Germany (1.3%) but lower than the US (2.5%) and the Eurozone as a whole (1.6%).

Predicted Eurozone economic growth in 2019.
Predicted UK economic growth in 2019.
Predicted German economic growth in 2019.

The UK economy is predicted to grow by 1.6% in 2020.

The IMF’s assessment of our economic prospects is largely unchanged from its last update in October. The chancellor’s Budget had a “positive impact” on its thinking which was offset by “prolonged uncertainty about the Brexit outcome”.

The IMF’s assumption remains that the current mess in Westminster will be resolved, Britain will reach agreement with the EU and will “transition gradually” to its new relationship, but the IMF points out that the process may not go smoothly. “As of mid-January,” it notes “the shape that Brexit will take remains highly uncertain”.

There are those who will argue that Britain can prosper outside the EU without signing a deal but the IMF strongly disagrees.

In the last few years the IMF has repeatedly aired its view that every shade of Brexit will leave the UK permanently poorer but that a disorderly Brexit - in which Britain departs the EU abruptly, without a transition period and on World Trade Organisation (WTO) terms - would be particularly negative.

IMF chief Christine Lagarde says Britain would be more damaged by a hard Brexit than the rest of the EU. Credit: PA

In September, Christine Lagarde, the head of the IMF, argued that it was too late to be able to contingency plan for a disorderly Brexit in March, which she said would cause the British economy to contract.

Lagarde argued that, in the event of a hard Brexit, economic growth across the rest of the EU would be damaged but to a “lesser extent” than in Britain.

Despite the grim warnings, public opinion appears relaxed about the prospect of no deal.

An ICM poll, conducted after the government lost the meaningful vote last week, asked 2,000 voters what should happen next.

The most popular option, supported by 28% of respondents, was a no deal Brexit.

The prime minister is due to set our her plan B to parliament on Monday.

A clean-break with the EU in March is not going to be part of that plan but it remains a possibility.

If parliament remains deadlocked on March 29 then Britain cuts loose with no deal at all.