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Lagarde Defends IMF's Brexit Forecasts After Experts Dismissed

Updated on
  • Says U.K. performance disappointing given global strength
  • Brexit remains the key uncertainty for economic outlook

Christine Lagarde defended the International Monetary Fund’s gloomy predictions about the impact of Brexit, saying the economy’s slowdown over the past year shows those warnings were correct.

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

Slowing Down

The IMF reduced its forecast for U.K. growth this year

Source: IMF

The IMF managing director said the 2016 prediction was right to say that leaving the European Union “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 on Wednesday.

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. As she was speaking, the EU Commission said a transition period would last until the end of 2020.

The IMF sees the U.K. expansion slowing to 1.5 percent next year from 1.6 percent in 2017, supported by exports as domestic demand weakens. It previously expected growth to reach 1.7 percent this year. Recent progress in Brexit negotiations is welcome, the report said.

Prime Minister Theresa May looks determined to push for a bespoke trade deal with the EU, despite the bloc’s insistence that such a scenario is out of the question. May presided over a discussion with her Cabinet on Tuesday to flesh out her vision of an end state, aiming for a “significantly more ambitious deal” than a pact in place between the EU and Canada. 

That sets the stage for a contentious year of talks. The EU’s chief negotiator, Michel Barnier, has underlined the bloc’s determination not to let the U.K. enjoy the benefits of membership without the obligations of a member state.

— With assistance by Svenja O'Donnell

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