By Joe Mellor, Deputy Editor
The IMF have made a stark warning ahead of the EU referendum, echoing the Bank of England’s recent claims.
Christine Lagarde believes that Britain could enter a sharp recession if the majority backs a Brexit. This would cause a steep drop in property prices and a stock market crash.
Lagarde, IMF managing director, also agreed with the Bank of England’s governor, Mark Carney, who claims that Britain would enter a technical recession in a Brexit scenario.
Lagarde, presented the IMF’s annual health check on the UK economy, and said it was possible the economy would shrink in two consecutive quarters; the definition of a recession.
She said: “We have looked at all the scenarios. We have done our homework and we haven’t found anything positive to say about a Brexit vote.”
The IMF also claim that voting to remain part of the EU would see growth in the UK economy in the second half of 2016, lifting Britain out of a fairly stagnant year.
The statement said: “Markets may anticipate such adverse economic effects. This could entail sharp drops in equity and house prices, increased borrowing costs for households and businesses, and even a sudden stop of investment inflows into key sectors such as commercial real estate and finance.
“The UK’s record-high current account deficit and attendant reliance on external financing exacerbates these risks.
“Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle.”
A vote to stay would benefit the economy, IMF said: “In the event of a vote to remain in the EU, growth is expected to rebound during the second half of the year. As anticipated, the slower first half, and some lingering referendum-related effects, mean that growth is likely to fall below 2% for the full year 2016, before returning to an average of around 2.25% over the medium term, roughly in line with potential.
“Inflation, which is currently only 0.5%, is expected to revert to target gradually, as effects from commodity price falls dissipate and low unemployment helps push up wages.”
