Daily Management Review

IMF Says Economic Indications In UK Show Its Gloomy Brexit Forecast For The Economy Turning True


IMF Says Economic Indications In UK Show Its Gloomy Brexit Forecast For The Economy Turning True
The International Monetary Fund has said that the warnings of slow growth for UK that it had made before the Brexit referendum are turning out to be true and has thus sternly defended the dismal forecasts for the economy after Brexit.
Britain’s slower growth that is being witnessed now and in sharp contrast to the positive growth in rest of the global economy showed that there were already visible impacts of the country’s decision to leave the EU in the 2016 referendum, said Christine Lagarde, the fund’s managing director.
There were many who had sternly criticized the fund when its forecast had not come true immediately after the referendum and Lagarde I return strongly criticized such critics while speaking on the occasion of presenting the annual report about the UK economy by the IMF.
“We feared that if Britain decided to leave, it would most likely entail a depreciation of sterling, higher inflation leading to a squeeze on disposable income and a reduction in investment,” she said.
“People said ‘Oh those experts’, but we are seeing the narrative we identified as a potential risk being rolled out as we speak. This is not the experts speaking, it’s what the economy is demonstrating.”
The IMF now expects that the K economy would grow at 1.5 percent in 2018 and the fund also lowered its forecast for the current year to 1.6 percent from the earlier prediction of 1.7 percent made in October.  
The IMF forecast was just one of many that predict a slowdown for the UK economy if there was a vote in favor of Brexit.
The IMF had predicted a growth rate of 1.1 percent for the UK economy for 2017 but had later raised it to 2 percent before lowering it again.
At a time when the global economy was performing at its best since the financial crisis, the performance of the UK economy in terms of slowed activities was disappointing, Lagarde had been saying since the beginning of the current year.
The TUC general secretary, Frances O’Grady, said: “This shows that Brexit uncertainty has already harmed family budgets. Jobs and living standards must be the priority when deciding the best Brexit option for Britain. The government should keep single market membership on the negotiating table.”
Lagarde said that the negotiators should ensure that no significant trade barriers are erected  in the final deal between EU and the UK , even while welcoming the recent development in the talks between the UK and the EU relating to citizens’ rights, Northern Ireland and the financial settlement.
There are huge uncertainties facing Britain as the country is attempting to secure its ambitions through the negotiations with the EU, stressed the fund’s article IV consultation.
The fund claimed that there are chances of significant drop in the commercial property market  and a credit crunch in financial markets in case there is no trade deal between the EU and the UK and this is a risk that the UK is facing, even while it applauded the recent positive developments.
A breakdown in discussions “could lead to a disorderly exit from the EU and sharp falls in asset prices”, the IMF said while outlining its concerns, and said hat at the same time, the list of things that are still needed to be agreed to “is very long and the timeframe to do so is ambitious”.
“The list of tasks … include agreeing on a trade deal with the EU, negotiating new arrangements with about 60 countries to replace those to which the UK is currently party via its membership in the EU, bolstering human and IT resources in customs and other services, and translating many thousands of pages of EU law into UK domestic statute,” it said.
The fund said that Brexit offered the opportunity “to reshape the structure of the UK economy”, but the finance industry and the car manufacturers would be impacted by any regulatory barriers that may crop up.
“The financial sector, which represents about 7% of GDP but accounts for about 10% of tax revenues and 14% of exports, may be particularly affected in the absence of an agreement that allows the majority of EU-facing financial services currently provided from the UK to remain there,” the report said.
 “Manufacturing firms with complex and lengthy international supply chains, such as in the automobile industry, could also face significant challenges. These developments could also have a significant impact on productivity growth.”