The Economy

IMF Sees Brexit Having Negative Economic Effect

"The balance of evidence points to notable downward economic risks to the U.K. economy" if the country leaves the EU, the Fund warns.
Matthew HellerJune 20, 2016

If Britain votes this week to leave the European Union, the economic effects on the country would likely be “negative and substantial,” the International Monetary Fund warns in a new report.

With financial markets around the world on edge ahead of the June 23 referendum, a poll for the Sunday Times newspaper published Saturday showed support for Britain staying in the EU was leading the “Out” campaign by 44% to 43%.

According to the Times, the bounce in support for “In” reflected growing concerns among voters about the economic impact of a so-called Brexit. In its annual review of the U.K. economy, the IMF last week echoed those concerns.

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“The range of possible effects on the U.K. and other economies is broad,” the fund’s analysts said. “Nonetheless, the balance of evidence points to notable downward economic risks to the U.K. economy.”

The direct effects, the report said, would not only include loss of income from reduced trade access, “but extend to potential productivity losses, and would be magnified if exit from the EU were also accompanied by restrictions on migration.”

Noting that about a third of the U.K.’s financial and insurance services exports are to the EU, and most of U.K. banks’ investments are in the EU, the IMF also warned that “the financial sector is highly exposed to a loss of access to the [EU] single market.”

Supporters of a Brexit contend that leaving the bloc would ultimately make Britain richer by allowing freer trade with other parts of the world and by reducing the burden of regulation on businesses. But the IMF said that “the potential for a wave of deregulation to generate productivity gains sufficient to offset losses from reduced trade access to the European single market seems low, given the already relatively low degree of regulation in the U.K.”

“In the long term, a British exit from the EU could have profound effects on the U.K. financial system, its global standing, and its contribution to the economy,” the Fund warned.