Incomes, house prices, output, currency and investment could all be hit hard by a Leave vote
The IMF has warned that a Leave vote would trigger ‘a protracted period of heightened uncertainty’ and cause long-term damage across economic sectors.
In its annual review of the UK economy, the Fund focused on the ‘momentous decision’ facing British people.
It observes that the risk of Brexit has already had an impact on investment of hiring and—even in the event of a Remain vote and rebound in the second half of the year—the referendum will likely cause 2016 growth to drop below two per cent.
While Christine Lagarde, managing director of the IMF, emphasised that her organisation is impartial and simply aims to relay the facts, those facts will benefit the Remain campaign.
The IMF has previously warned of the risks of Brexit, but it has delivered a significantly darker forecast in this report.
As well as echoing other predictions of a decline in GDP (to the tune of about one per cent), net fiscal losses and weakening of the City of London, the report also delivers an ominous worst-case scenario:
“Another risk is that markets may anticipate such adverse economic effects, provoking an abrupt reaction to an exit vote that effectively brings these costs forward. This could entail sharp drops in equity and house prices, increased borrowing costs for households and businesses, and even a sudden stop of investment inflows into key sectors such as commercial real estate and finance . . . Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle.”
This reinforces the Bank of England’s warning, delivered yesterday, that Brexit could force the UK economy into recession.
The major economic argument of the Leave camp has been that the UK can reinvest the money it sends to the EU into domestic services. The IMF directly contradicts this argument, predicting that post-Brexit revenue losses would ‘more than offset any gains from eliminating the UK’s net EU budget contribution’.
While the report does most to undermine the arguments of Brexiters, it also raises questions about the David Cameron’s decision to hold the referendum in the first place since, whatever the result, the UK economy is expected to suffer because of the vote.
Additionally, while the EU analysis is the headline news, the report also repeats previous critiques of the government’s economic policy.
Primarily, it repeats calls for the government to boost housing supply, ‘which supports growth by fostering construction and bolsters financial stability by increasing home affordability, thereby reducing households’ need to take on high debt.’
Instead, the government has introduced policies that make it easier for some segments of the population to purchase homes, but do not resolve the supply shortage.
Disturbing figures released today by the ONS today show that UK construction output is down 3.6 per cent despite the housing crisis and George Osborne’s ‘we are the builders’ boast.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.