The International Monetary Fund warned on Tuesday that Britain would suffer economic damage equivalent to at least 2-3 years of normal growth from now until the end of 2021 if it leaves the EU without an exit agreement.
The fifth-largest economy in the world could leave the European Union on Friday, disrupting ties with the bloc it joined 46 years ago if Prime Minister Theresa May does not come to an agreement with the European Union leaders on Wednesday.
The IMF said that even under the UK’s non-relativistic EU exit scenario, with no delay on the borders and minimal unrest in the financial market, the economy will grow by 3.5 percent less by the end of 2021 than it would provide the country would leave the EU more smoothly.
“The increase in trade barriers has an immediate negative impact on UK foreign and domestic demand,” the IMF said.
The IMF said the EU economy would also suffer, but less than Britain, with a possible 0.5 percent decrease in GDP compared to a smooth Brexit.
British exports to the European Union and other countries with trade deals with the EU will face tariff and regulatory barriers if Britain returns to the rules of the World Trade Organization favored by some EU supporters.
Brexit supporters accused the International Monetary Fund (IMF) of making politically motivated predictions in the past.
In its report on Tuesday, the IMF said the worst-case scenario of Brexit, which does not include any deal involving border delays and financial market turmoil, would increase the damage to about 4 percent of GDP by 2021.
Expectations took into account the British government’s plans not to impose a tariff on most import categories in the event of Britain leaving the EU without a deal, and also assumed that the Bank of England would cut interest rates.
Bank of England Governor Mark Carney made widely similar estimates for the cost of Britain’s exit from the EU without a deal last month when he said government and corporate preparations could only ease some of the damage of a possible no-deal Brexit.
A spokesman for the Ministry of Finance said the government wants to leave the European Union deal but is preparing for the United Kingdom leaving the EU without a deal.
The International Monetary Fund (IMF) lowered its forecast for UK economic growth this year to 1.2% from its 1.5% forecast of three months ago, which would be the weakest since 2009.
Growth in 2020 saw a rise of 1.4%, but in both years the British economy was expected to grow less than the euro zone, as opposed to before the UK’s 2016 exit referendum.
“The downward revisions … reflect the negative effect of prolonged uncertainty about the Brexit outcome, only partially offset by the positive impact from fiscal stimulus announced in the 2019 budget,” the IMF said.
The Bank of England should adopt a “cautious, data-dependent” approach to monetary policy, the IMF declared.