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International Monetary Fund lowers growth forecast for British economy amid Brexit

18 January 2018

International Monetary Fund chief Christine Lagarde said Britain's economy is already suffering from last year's vote to leave the European Union - fulfilling previous warnings that Brexit supporters had dismissed as too gloomy.

Speaking at the Treasury as the IMF announced the results of its annual health check of the United Kingdom economy, Lagarde hit back at those who lambasted the fund when predictions of an immediate post-referendum recession failed to come to pass.

She said: "We feared that if Brexit was decided upon, it would most likely entail a depreciation of sterling, an increase in inflation, a squeezing in wages and a slowdown and a reduction of investment".

Ms Lagarde branded the figures "disappointing" compared to other advanced economies.

The IMF expects growth of 1.6 per cent this year, down slightly from its previous forecast of 1.7 per cent.

It was one of several economic forecasters to say the United Kingdom would suffer a downturn should voters back leaving the EU.

The IMF's latest forecast suggests that the UK's medium-term potential productivity growth is only 1.5, similar to 2017.

British Prime Minister Theresa May said Tuesday she wanted an "ambitious" Brexit trade deal with the EU.

It added: "Early agreement on a transition period would avoid a cliff edge exit in March 2019 and reduce the uncertainty facing firms and households".

The Fund stressed that United Kingdom is facing uncertainty because it is beginning an ambitious mission to negotiate on the exit from the European Union, warning that despite the progress achieved by the United Kingdom in talks, but there is still a risk of not reaching a final deal.

"[The sector] may be particularly affected in the absence of an agreement that allows the majority of EU-facing financial services now provided from the United Kingdom to remain there", it said.

Talks include agreeing on a trade deal with the European Union and negotiating on new arrangements with around 60 countries to discuss agreements in which United Kingdom was a member of during its membership in the EU.

Worryingly, the International Monetary Fund warned that if Brexit leads to the movement of a "meaningful share" of the financial sector outside the United Kingdom, available tax revenues could fall fast.

"Manufacturing firms with complex and lengthy global supply chains, such as in the automobile industry, could also face significant challenges".

Traders globally also watched developments in the US, where the Republicans were getting closer to sending a bill on tax cuts and other changes to President Donald Trump to sign into law.

The report also gave support to the government's plans for bringing down the annual deficit over the next five years.

"Under these circumstances, greater reliance on revenue measures for consolidation [of the budget] than in recent years may be warranted", the report said.

International Monetary Fund lowers growth forecast for British economy amid Brexit