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Brexit trade deal can help UK growth: IMF
December 21, 2017
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London: Britain’s tepid growth can improve along with other advanced economies should a positive trade deal over Brexit be agreed with the European Union, IMF chief Christine Lagarde said on Wednesday.

“The more the UK economy will be open to trade in general, the EU included, the more likely that productivity will go up and growth will increase,” Lagarde told a press conference in London after the International Monetary Fund trimmed its UK growth forecast for this year and maintained its prediction for 2018.

“Clearly... the UK economy is losing out as a result of the decision” to exit the European Union, said Lagarde, as she refuted suggestions that the IMF was “too gloomy” regarding its outlook.

In its report, the IMF trimmed its forecast for growth this year in the British economy to 1.6 per cent, from the forecast of a 1.7 per cent expansion it made in October.

The Fund however maintained its forecast 1.5 per cent growth in gross domestic product next year.

“Developments with Brexit negotiations are a key uncertainty,” said the IMF report.

“Faster-than-expected progress towards a mutually beneficial economic outcome could buoy confidence. On the other hand, a breakdown in discussions could lead to a disorderly exit from the EU and sharp falls in asset prices.” British Prime Minister Theresa May said Tuesday she wanted an “ambitious” Brexit trade deal with the EU.

May wants Britain to leave the EU single market and customs union, but forge a new “deep and special economic partnership” with the bloc.

However, the EU’s chief negotiator Michel Barnier has warned that any deal would inevitably result in Britain’s banks and financial companies losing rights to trade across the bloc.

The IMF report said “an agreement that minimises tariff and non-tariff barriers and ensures that firms have access to the labour they need would best support growth”.

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.”

Britain may need to raise more money from taxes to bring down its budget deficit after relying heavily on keeping a tight grip on public spending, the International Monetary Fund said on Wednesday.

“Deficit reduction since the financial crisis has relied mostly on spending measures,” the IMF said in an annual report on Britain’s economy.

“While the government should continue to seek the best value for money in public spending, a more balanced approach to deficit reduction may be called for in future,” it said.

The impact of Brexit on the economy and Britain’s low productivity growth could hit tax revenues, while demands on public spending would increase as the country’s population grows older.

Agencies

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