Surprise! More IMF gloom for UK

THE UK will fall into a two-year recession if there is a No Deal Brexit, the International Monetary Fund warned yesterday.

The bleak prediction, in its latest World Economic Outlook report, says the UK economy would be 3.5 per cent smaller than previously expected by 2021.

Leaving the EU without a deal, disrupting supply chains and raising the costs of trading with overseas countries, could have ‘large and long-lasting negative impacts on the economies of the UK and the EU’, it says. The IMF’s intervention is likely to cause a political storm, though, with Brexiteer critics certain to point to its flawed forecasting record. It has repeatedly underestimated the resilience of the UK economy since the 2016 referendum and has been forced to revise its gloomy predictions. It said UK growth would be just 1.1 per cent in 2017. The true figure was 1.8 per cent.

Yesterday Gita Gopinath, the Fund’s chief economist, said that if the UK left with No Deal and fell back on World Trade Organisation rules, the economy could be up to 6 per cent smaller over the longer term. The EU economy would shrink by 0.5 per cent. ‘We hope there will be a deal soon but it is difficult to predict,’ she added.

Even if Britain leaves the EU with a deal and a transition period, there will still be damage to prosperity, the IMF says. It has scaled back its forecast for growth in the UK to 1.2 per cent in 2019, down from the 1.5 predicted as recently as January.

The economy is then expected to grow at 1.4 per cent in 2020.

But the IMF says the outlook is ‘ surrounded by uncertainty’ and the downgrades ‘reflect the negative effect of prolonged uncertainty about the Brexit outcome’. It said if there was a severe slowdown, Chancellor Philip Hammond should keep interest rates low and rein in his plans to cut the deficit. The IMF has also issued gloomy forecasts about the German economy. A feeble expansion of just 0.8 per cent is expected this year, down from the 1.3 per cent forecast in January.