IMF chief: Interest rates could ‘rise sharply’ after Brexit

The consequences of Britain quitting the European Union would range from “pretty bad to very, very bad”, the head of the International Monetary Fund has warned.

Brexit poses a “significant downside risk” and could see interest rates “rise sharply”, Christine Lagarde said as the global finance body published its regular report on UK economic prospects.

Withdrawal from the 28-member bloc would result in a “protracted period of heightened uncertainty” for the UK, with a likely hit to output and “sizeable” long-term losses in income, according to the assessment.

Global market reaction to a Leave vote in the June 23 referendum is likely to be “negative and could be severe”, it added.

Ms Lagarde said the prospect of Britain voting to leave was causing “anxiety around the world”.

She told reporters that Brexit “could potentially lead to a technical recession” — two or more quarters of negative growth — in comments that echoed warnings by the Bank of England governor Mark Carney.

“It is a combination of the current situation, with the weaknesses of the current account deficit — north of 5% — and the potential immediate outcome of a No vote and the level of uncertainty that would certainly lead to serious disruptions,” she said.

“The combination of all that could potentially — and that is one of the many probabilities — lead to a technical recession.”

The IMF managing director insisted there was no positive scenario for UK economic performance after Brexit when other trade models were analysed, such as Norway and Switzerland, or reverting to World Trade Organisation rules.

“Depending on what hypotheticals you take it’s going to be pretty bad to very, very bad,” she said.

“We have looked very carefully at the whole range of existing opinions, calculations, modularisations, forecasts, scenario planning, and we have done our own homework, and frankly, in the very vast majority of what we have seen, we haven’t seen anything that is positive, it’s always been on the negative side.”

Chancellor George Osborne said: “The IMF also put to rest the fallacy that has been peddled by those who say Britain will have more money for public services if we are not paying into the EU budget.

“The IMF are very clear today — the hit to growth we could expect from a vote to leave would cost our public finances more than the amount we would gain from no longer contributing to the EU budget. Put simply, the IMF says a vote to leave costs us money.”

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