The International Monetary Fund urged UK Prime Minister Theresa May to strike a deal with the European Union, warning that a “no-deal” Brexit would most likely be disorderly and carry substantial costs for the British economy.
“Overcoming differences and reaching a deal with the EU will be crucial to avoid a no-deal Brexit, which would impose very large costs on the UK economy,” IMF Managing Director Christine Lagarde said.
The UK is set to leave the European Union on March 29, 2019.
In an interview to the BBC, May said UK lawmakers had little choice between her proposed deal with the EU. “It’s either my deal or no deal”, May said.
Indeed, leaving the EU without an agreement on the framework for the future economic relationship and an implementation period to get there is the most significant near-term risk to the UK economy, Lagarde added.
IMF staff concluding statement of the Article IV mission advised both the UK and EU to reach an agreement that minimizes new tariff and non-tariff barriers so as to protect growth and incomes.
Although new trade agreements with non-EU countries could eventually pare some of these losses for the UK, such agreements are unlikely to bring sufficient benefits to offset the costs imposed by leaving the EU.
At the joint press conference, Chancellor Philip Hammond said a no-deal scenario remains unlikely – but it is not impossible.
“As talks intensify, I am confident we will reach agreement on the Withdrawal Agreement and Future Framework this Autumn,” said Hammond.
Lagarde cautioned that the range of issues that remains to be addressed is daunting, and the time left to accomplish them may be very short. The UK is set to exit EU next March.
The IMF forecast the economic growth to average around 1.5 percent this year and next. Lagarde said a disorderly Brexit would lead to a contraction in the UK.
Elsewhere on Monday, the Institute for Government warned that the government has “left its preparations for ‘no deal’ too late.”
The proposed 21-month transition period would be too short for the negotiation, ratification and implementation of the final deal, the think tank said.
Earlier in the day, the British Chambers of Commerce downgraded its growth expectations for the UK economy citing weaker outlook for trade and investment amid Brexit uncertainties.
Growth forecast for 2018 was lowered to 1.1 percent from 1.3 percent and that for next year to 1.3 percent from 1.4 percent. Meanwhile, the projection for 2020 was kept unchanged at 1.6 percent.