IMF Renews No-Deal Brexit Warning as May Puts Plan to Ministers

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The International Monetary Fund renewed its warning to the U.K. about the costs of a disruptive exit from the European Union.

The comments were published Wednesday as Prime Minister Theresa May was due to ask her divided Cabinet to support the divorce agreement she has secured with the EU after 16 months of talks.

The risk is that some ministers will dislike it so much that they will quit. But a tougher test will be getting the plan through Parliament. If May is defeated, the U.K. will be on course to crash out of the EU next March into legal limbo.

The IMF, which sees the U.K. economy expanding about 1.5 percent this year and next assuming a smooth transition to a free-trade agreement, says the biggest threat to the outlook is the possibility of a no-deal Brexit, which would disrupt asset prices and have a “large negative impact” on growth.

“A scenario in which future trade between the U.K. and the EU is governed by WTO rules is estimated to bring about output losses of around 5 to 8 percent compared to a no-Brexit scenario in the long run,” the Washington-based lender said.

The warning is contained in a report prepared by IMF staff for the Executive Board following their annual Article IV inspection of the U.K.

Asked whether a disorderly Brexit could trigger a recession, Philip Gerson, the fund official who oversees the U.K., told a conference call with reporters that no attempt had been made to model the short-term consequences.

However, it was “reasonable to assume that more of the costs would be borne upfront” than in an orderly departure, he said.

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