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IMF Brexit warning: UK GDP to drop 9.5 percent

Guzal Norkulova | May. 13, 2016
IMF Brexit warning: UK GDP to drop 9.5 percent

13 May, AtoZForex, Vilnius - Causing huge discontent among critics, International Monetary Fund (IMF) said that a Brexit could reduce the economy by 9.5%, hitting the output of UK.  In case, Britain votes to leave EU next month, significant losses in income can be expected, which in any way won't be a good news, as the country is experiencing a long period of uncertainty - the IMF Brexit warning reveals.

Christine Lagarde, head of the IMF said that leaving the European Union will bring "particularly severe" consequences, and she could not detect anything positive about the exit. Interest rates could jump up sharply in the frame of Brexit, making a negative impact on households who have big debts - added MS Lagarde in a news conference today. While criticizing, Ms. Lagard admitted that IMF has given wrong forecasts in the past.

IMF Brexit warning: pessimistic forecast for British economy

The reaction of the market will likely be "negative" - claimed global finance body. The event of leaving Europe would also damage investment, trade and productivity, decreasing GDP by between 1.5 per cent and 9.5 per cent. Any loss bigger than one percent will diminish any benefits from the elimination of the UK's EU budget contributions, said IMF.

The Fund went on claiming that as UK-based companies are under a danger of loosing their "passporting" rights to provide services to euro-dominated businesses and the rest of European Union, London's status of a global financial centre might also be "eroded".

Brexit already impacts investment decisions

The EU referendum "already appears to be having a negative impact on investment and hiring decisions, with recent surveys of economic activity falling to their weakest levels in three years" - added the IMF. Volatility in financial markets "would likely rise as markets adjust to new circumstances", as well as negotiation of new trade relationships with EU might "remain unresolved for years, weighing heavily on investment and economic sentiment". During two months, it is the second time when the IMF Brexit warning got issued.

"A British exit from the European Union could pose major challenges for both the United Kingdom and the rest of Europe." - reported IMF in its update on the global economy.

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