The managing director of the International Monetary Fund has made an impassioned plea for Britain to stay in the EU, saying Brexit would spell the painful breakdown of a “long marriage” with grave risks for the global economy.
Christine Lagarde said uncertainty created by the 23 June referendum was already dragging down the UK economy, and a decision to leave the bloc would make matters worse.
She said that if the UK did leave the EU it would spark debate in other member countries about whether they should follow its example, which would create even more uncertainty and risk.
“It’s been a long marriage between members of the European Union. It’s my personal hope that it doesn’t break. And like all marriages, good talks can actually help,” she said at the IMF and World Bank’s spring meetings in Washington.
She urged politicians to “rise above the domestic circle”, and said she personally leaned towards the UK and the EU “staying together and working it out”.
Lagarde, who has already called for the UK to remain part of the EU, drew on the 28-nation bloc’s history to call for continued unity. “Keeping Europe together after what it has gone through is a huge asset that has been vastly under-estimated.”
She reiterated a warning the IMF made earlier this week on the potential blow to economic growth and financial stability across Europe and beyond from a Brexit vote. “The risk of exit of the United Kingdom is a serious concern,” she said.
In its update on the global economic outlook the IMF downgraded its expectations of UK growth this year from 2.2% to 1.9%, a significant drop from 2.2% achieved in 2015. The warning was welcomed by campaigners for the UK to stay in the EU, including David Cameron, but Brexit campaigners accused the international institution of talking Britain down.
Speaking at the spring meetings, which are attended by central bankers and finance ministers from 189 countries, Lagarde said: “We have clearly elevated Brexit as more of a serious downside risk to our forecast for global growth.”
Jim Yong Kim, the president of the World Bank, also said that Britain would be stronger by remaining part of the EU. “The Brexit is an issue for the British voters and we leave it to the British voters to decide,” he said. “[But] this is an economy that is not going to do well with more uncertainty.”
The warnings about Brexit in Washington chimed with comments from the Bank of England that the referendum was generating uncertainty and could weigh on economic growth in coming months. A vote to leave the EU could harm economic growth and have a serious impact on the pound and other UK assets, the Bank’s monetary policy committee (MPC) said in minutes to its latest interest rate meeting.
In its strongest statement yet on the June referendum, the Bank revealed its rate-setters had been weighing up possible responses to a Brexit vote. Many economists believe such an outcome would prompt the Bank to cut interest rates for the first time since the financial crisis, according to a Reuters poll this week.
Ahead of what is expected to be a tight poll, there were signs that companies were delaying investment decisions and the pound had weakened markedly, policymakers noted as they left interest rates at a record low of 0.5%. Borrowing costs have been at their historic low for seven years and the tone of the minutes underscored expectations they would remain there until well into next year.
The Bank vowed to tread carefully ahead of the vote and in the aftermath of a potential Brexit.
The record of the meeting said: “Such a vote might result in an extended period of uncertainty about the economic outlook, including about the prospects for export growth. This uncertainty would be likely to push down on demand in the short run … A vote to leave could have significant implications for asset prices, in particular the exchange rate.
“The MPC would have to make careful judgements about the next effects of these potential influences on demand, supply and inflation. Ultimately, monetary policy would be set in order to meet the inflation target, while also ensuring that inflation expectations remained anchored.”
The referendum got 17 mentions in the latest minutes compared with five after March’s policy meeting, noted James Knightley, and economist at ING bank. He said the Bank of England was clearly in wait-and-see mode on policy given the pressure on consumer sentiment, business confidence and investment ahead of the vote.
“However, should the UK vote to leave the next move is likely to be a rate cut as policymakers try to shore up confidence,” he said. “We expect sterling to fall sharply, which would push up inflation temporarily, but the expected hit to economic activity in an environment where business and consumer sentiment is severely strained suggests that the BoE will look through this.”
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