IMF highlights global fears surrounding a Brexit vote

London's standing as a global financial centre could be eroded if there is a vote to leave the European Union in June's referendum, the IMF has warned in its latest review of the state of the UK economy.

Christine Lagarde, IMF

MEDEF [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

A vote for a Brexit would also have a "negative and substantial effect" on economic growth and result in a "protracted period of heightened uncertainty", the Washington-based organisation said.The warnings came less than 24 hours after Mark Carney, the governor of the Bank of England, said a vote to leave the EU could trigger a recession in Britain, resulting in an economic slowdown, cuts in jobs and a plunge in the value of the pound.And in a further blow to those agitating for a Brexit, Sir John Major, the former Conservative PM, said in a speech in Oxford that 'leave' campaigners were fuelling prejudice against immigrants.The IMF report said that a Brexit vote was likely to produce a global market reaction that would be "negative and could be severe" and said it could take years of negotiation with the EU to establish a new trade arrangement, affecting investment decisions and output.Christine Lagarde, IMF managing director, denied the organisation was interfering politically in the UK's affairs but said the organisation had a duty to set out the expected consequences of a Brexit because global concern was so high.Ms Lagarde – visiting London to meet with Chancellor of the Exchequer George Osborne - said that, depending on what post-Brexit deal the UK was able to secure, "it's going to be pretty bad to very, very bad".She added, "We are doing (this review) because it is a significant downside risk and because it is not just a domestic issue. It is an international issue. I don't think that in the last six months I have visited a country anywhere in the world where I have not been asked, 'What will be the economic consequences of Brexit?'."And in addition to Greece, Ukraine and a few others, what will be the outcome if the UK was to leave the European Union and what will be the consequences? So it is out of duty and loyalty to our mission that we have to study that in depth."Mr Osborne said, "The IMF are very clear today – the hit to growth we could expect from a vote to leave would cost our public finances more than the amount we would gain from no longer contributing to the EU budget. Put simply, the IMF says a vote to leave costs us money.Pointing to a section of the IMF report that said the prospect of leaving was already having an impact on investment and hiring, Mr Osborne said, "The fund are clear that this could be a mere taste of things to come if we vote to leave. The IMF also put to rest the fallacy that has been peddled by those who say Britain will have more money for public services if we are not paying into the EU budget."Meanwhile, in a speech at Oxford University, Sir John Major took a thinly-veiled swipe at senior Conservatives in the 'leave', including Boris Johnson and Michael Gove, saying that their fear-inducing rhetoric risked provoking long-term divisions in the country."As the 'leave' arguments implode one by one, some of the Brexit leaders morph into UKIP, and turn to their default position – immigration," Sir John said. "This is their trump card. I urge them to take care, this is dangerous territory that – if handled carelessly – can open up long-term divisions in our society."Of course, it is legitimate to raise the issue of the sheer number of those wishing to enter our country. I wholly accept that. Nor do I wish to silence debate. We mustn't overlook genuine concerns, but these should be expressed with care, honesty and balance. Not in a manner that can raise fears or fuel prejudice. The 'leave' campaign are crossing that boundary, and I caution them not to do so."We must not let emotions be stirred by false fear – nor allow that false fear to impair our judgment on the future of our country."

Read more about how the UK economy is weathering seismic changes from around the world including the uncertainty over Brexit in David Sapsted’s analysis for our Spring 2016 edition.




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