Brexit and global growth

The IMF’s chief economist says that Britain’s vote to leave the EU has ‘thrown a spanner’ of the global recovery.

DAVOS/SWITZERLAND, 26JAN13 - Christine Lagarde, Managing Director, International Monetary Fund (IMF), Washington DC; World Economic Forum Foundation Board Member is seen during the Session 'The Global Economic Outlook' at the Annual Meeting 2013 of the World Economic Forum in Davos, Switzerland, January 26, 2013. Copyright by World Economic Forum Moritz Hager

After the global economy performed better than expected at the beginning of 2016, the fund has today slashed growth forecasts for the UK and the world, blaming the referendum result for ‘a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences.’

This is consistent with the IMF’s pre-Brexit prediction that a Leave vote would could trigger ‘a protracted period of heightened uncertainty’ and cause long-term damage across economic sectors.

The UK will be the worst affected country, with other advanced European economies also suffering severe effects.

Britain’s growth forecast for 2016 has been cut by 0.2 percentage points and, looking forward to 2017, the IMF warns a one percentage point fall in growth.

Additionally, the report makes clear that this is a baseline assumption, and that a number of factors could make the effects worse.

For example, predictions are based on the ‘benign assumption’ that there will not be a significant increase in the trade barriers existing between the UK and the EU. If Brexit negotiations do not achieve this, ‘more negative outcomes are a distinct possibility.’

The Resolution Foundation has responded to the report by emphasising that a decrease in growth presents a huge challenge to the new chancellor, particularly as a decline in growth will decrease the tax take.

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