Messy Brexit could lead to big hit for UK economy: IMF

Fri Jun 17, 2016 7:04pm EDT
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By Andy Bruce

LONDON (Reuters) - A vote to exit the European Union in next week's referendum could leave Britain's economy more than 5 percent smaller by 2019 than if it stays in the 28-nation club, the International Monetary Fund said.

The IMF, which has previously warned that Britain and the world economy could be hit by a so-called Brexit, on Saturday provided a detailed analysis of how a "Leave" vote would affect the world's fifth-biggest economy.

If Britain manages to forge a Norway-style relationship with the EU, its economic output will probably be around 1.5 percent smaller by 2019 than if it stays a full member, according to the IMF's "limited" Brexit impact scenario.

Norway is not a member of the EU but it has access to its single market in return for contributing money to the bloc and accepting its freedom of movement principle and some of its other rules and regulations.

Under the Fund's "adverse" scenario - long and unsuccessful negotiations between London and Brussels followed by Britain having to trade with the EU under World Trade Organization rules - the economy would be 5.5 percent smaller by 2019.

"In the short run, the uncertainty generated by navigating a complicated and untested exit process could be damaging for investment, consumption, and employment (in Britain)," the IMF said in its report.

The Washington-based fund is one of a number of global institutions and governments to warn of the risks of a Brexit. Britain's economy slowed ahead of the vote and the Bank of England has warned an exit could tip it into recession.

Opinion polls this week suggested the "Leave" camp was ahead of the "Remain" side ahead of the June 23 vote. Campaigning was suspended after the murder of British lawmaker Jo Cox on Thursday.   Continued...

Part of a flotilla of fishing vessels campaigning to leave the European Union sails past Parliament on the river Thames in London, Britain June 15, 2016.  REUTERS/Stefan Wermuth