Washington: A “no-deal” Brexit would suppress the U.K.’s growth by 5 to 8 percent in the long run, the International Monetary Fund said on Wednesday.
The IMF assessed different Brexit scenarios in its annual review for the British economy, as Prime Minister Theresa May is trying to convince her cabinet to back the draft agreement between the U.K and the EU.
The Washington-based institution projects U.K. growth to remain around 1.5 percent under a baseline scenario that assumes a smooth transition to a broad free trade agreement with the bloc.
Warning against the risks of a “no-deal” Brexit, the U.K.’s long-run growth prospects would be 5 to 8 percent lower — with an average of about six percent — if it leaves the EU without an agreement compared to staying in the Union, the Fund estimated.
The British economy has weakened since the Brexit vote as the growth rate fell from 1.8 percent in 2016 to around 1.4 percent in 2018.
The worst scenario in the report was a disorderly exit from the EU, without an implementation period.
“In such a scenario, a sudden shift in investors’ preference for UK assets could lead to a sharp fall in asset prices and a hit to consumer and business confidence,” the IMF warned.
The British pound “would depreciate further, raising domestic prices and affecting households’ real income and consumption.”
However, some British politicians, even in May’s party, defend a hard Brexit with no deal, saying it would allow the U.K. to reach better bilateral trade agreements.
It remains to be seen if May, who favors a smooth Brexit, would be able to succeed to gain the support of her cabinet for the draft agreement.