Lagarde defends IMF’s gloomy Brexit forecasts

The UK will remain subject to EU’s rules during a transition period that will likely last through 2020

By BLOOMBERG

LONDON • Christine Lagarde defended the International Monetary Fund’s (IMF) gloomy predictions about the impact of Brexit, saying the economy’s slowdown over the past year showed those warnings were correct.

Speaking in London, she noted the criticisms levelled at the IMF and said the UK’s performance has been a “bit of a disappointment” given the upgrades to many other advanced economies this year.

The IMF MD said the 2016 prediction was right to say that leaving the European Union (EU) “would most likely entail a depreciation of sterling, an increase of inflation, a squeezing of wages and disposable income and a slowdown, and probably reduction, of investment”.

“People said that’s just experts talking. But what we are seeing today — that narrative we identified as a potential risk — is being rolled out as we speak,” she told reporters in London yesterday.

Lagarde was commenting at the publication of an IMF report on the British economy.

It said Brexit remains the “key uncertainty” for the outlook, and said early agreement on a transition deal before the March 2019 formal exit must be a priority.

The IMF sees the UK expansion slowing to 1.5% next year from 1.6% in 2017, supported by exports as domestic demand weakens.

It previously expected growth to reach 1.7% this year.

Recent progress in Brexit negotiations is welcome, the report said.

Meanwhile, the UK will remain subject to all the EU’s rules during a transition period that will probably last through 2020, EU chief Brexit negotiator Michel Barnier said.

“The transition period is useful and will enable the public administration in Britain to prepare themselves for the kind of challenges they will have to face,” Barnier told reporters in Brussels yesterday, as he published the EU’s position on the transition to be presented to the British government next month.

The EU says that it will only allow a transition period that would see the UK remain an EU member in all but name, without any say in the bloc’s decision-making or new laws.

It would have to allow full movement of people from the EU and the jurisdiction of the European Court of Justice, two issues which played a major role in the campaign to leave the EU last year.