IMF in stark warning over '˜significant costs' of a no-deal outcome

Leaving the EU without a Brexit deal would inflict 'substantial costs' on the UK economy, the International Monetary Fund (IMF) has warned.

IMF chief Christine Lagarde: Brexit costs exceed savings. Picture: John Stillwell/Pool via AP

In the latest of its regular assessments of the state of Britain’s finances, the IMF said that all likely Brexit scenarios would “entail costs for the UK economy”, but that a disorderly departure could lead to “a significantly worse outcome”.

While new trade agreements made possible by EU withdrawal “could eventually pare some of these losses for the UK”, any such deals are “unlikely to bring sufficient benefits to offset the costs imposed by leaving the EU”, the international economic think tank said.

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And the cost of Brexit will “exceed” any savings from lower contributions to the EU budget.

In its report, launched by managing director Christine Lagarde alongside Chancellor Philip Hammond at the Treasury in London, the IMF urged UK authorities to prepare policies to “safeguard macroeconomic and financial stability” in the case of a chaotic Brexit.

Mr Hammond said the report underlined the need for a Brexit deal to ensure the economic gains of the past decade were not lost.

“We are at a critical juncture for the UK economy. Despite the contingency actions we are taking, leaving without a deal would put at risk the substantial progress the British people have made over the last ten years,” he said.

Downing Street stopped short of an explicit endorsement of Mr Hammond’s warning. When asked whether the Prime Minister backed her Chancellor’s assessment, Theresa May’s spokesmansaid: “The PM said very clearly that we will have plans in place to allow us to succeed in all scenarios.”

Ms Lagarde said the UK economy was likely to be weaker under any likely scenario, while a disorderly, no-deal Brexit would have serious consequences.

“It would inevitably have a series of consequences in terms of reduced growth going forward, increased deficit most likely, depreciation of the currency,” she said. “It would mean in reasonably short order a reduction in the size of the UK economy.”

SNP Westminster leader Ian Blackford said people would not be “duped” into a false choice between no deal and the Prime Minister’s Chequers plan for Brexit.

“It is increasingly clear that the last damaging option is to remain in the single market and customs union - short of staying in the EU, that is the best and only way to protect jobs and prosperity,” Mr Blackford said.