Warning of downward spiral, IMF sees no economic upside to Brexit

Fri May 13, 2016 9:19am EDT
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By David Milliken and William Schomberg

LONDON (Reuters) - International Monetary Fund chief Christine Lagarde said on Friday there were no economic positives to Britain leaving the European Union and that the impact would range from "pretty bad to very, very bad".

Her blunt warning came as the IMF said the country risks falling into a spiral of weaker economic growth, lower house prices and diminished foreign investment if voters opt to leave the European Union after the referendum next month.

The fund, in an annual report on Britain's economy, said an exit vote would "precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output."

A sudden stop to investment in key sectors of the economy such as commercial real estate and finance could exacerbate Britain's record-high current account deficit, the report said.

"Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle," the Fund said. It also repeated a warning that a Brexit shock could upset the global economy.

British voters have been bombarded with Brexit warnings in recent weeks. On Thursday, the Bank of England said the economy would slow sharply, and possibly even enter a brief recession, a possibility backed by Lagarde on Friday.

The Organisation for Economic Co-operation and Development has also warned that British voters risk paying a "Brexit tax" equivalent to a month's salary by 2020 if they leave the EU.

Lagarde said the Fund would publish detailed forecasts for the size of a Brexit hit to Britain's economy probably on June 16, a week before the referendum and the same day that finance minister George Osborne and BoE Governor Mark Carney are due to make high-profile speeches at the annual Mansion House dinner.   Continued...

Christine Lagarde, Managing Director of the IMF meets Britain's Chancellor George Osborne, prior to a press conference, at the Treasury in London, Britain May 13, 2016.   REUTERS/Peter Nicholls