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| Brexit would prompt stock market and house price crash, says IMF | |
| (about 1 hour later) | |
| A stock market crash and steep fall in house prices could follow a vote to leave the EU, the International Monetary Fund has warned. | |
| Christine Lagarde, the IMF managing director, also backed the Bank of England’s governor, Mark Carney, who said on Thursday that Britain could enter a technical recession following a Brexit vote. | |
| Lagarde, speaking at a press conference at the Treasury in London on Friday as she presented the IMF’s annual health check on the UK economy, said it was possible the economy would shrink in two consecutive quarters, which is the definition of a recession. | |
| “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,” she said. | |
| The IMF warned that a panic among investors would trigger shockwaves throughout the economy, sending shares and property prices into a spin. | |
| In a report that is clearly helpful to campaigners for Britain to remain in the EU, the IMF said that over the longer term, growth would be depressed. | In a report that is clearly helpful to campaigners for Britain to remain in the EU, the IMF said that over the longer term, growth would be depressed. |
| The stark warning was coupled with a prediction that a vote to remain in the EU would spur a rebound in growth in the second half of the year, ending more than a year of stagnant output and falling business confidence. | |
| Related: IMF: Brexit would send shockwaves through UK economy - business live | Related: IMF: Brexit would send shockwaves through UK economy - business live |
| It 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. | It 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. | “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.” | “Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle.” |
| Lagarde said countries across the whole world were concerned about the impact of a UK vote to leave the EU on their own economies and the global situation. “There isn’t a country I have visited in the last six months that hasn’t asked me what we think the impact of Brexit will be.” | |
| She said there was a “huge amount of anxiety” that made it “entirely legitimate” for the IMF to carry out an assessment of the risks. | |
| She added that the timing of the report was not significant and fitted with publishing a detailed analysis of the UK economy ahead of the IMF board meeting in the autumn. “We are not doing it out of politics,” she said. “That is not how the IMF works.” | |
| The IMF said there would only be a limited boost for net exports caused by an abrupt sterling depreciation and this would only partly offset the hit to GDP from reduced consumption and investment. | The IMF said there would only be a limited boost for net exports caused by an abrupt sterling depreciation and this would only partly offset the hit to GDP from reduced consumption and investment. |
| Related: EU referendum: barrage of grim forecasts takes aim at our homes | |
| The report added that inflation could also rise well above the Bank of England’s 2% target at some time. | The report added that inflation could also rise well above the Bank of England’s 2% target at some time. |
| A vote to stay would benefit the economy after a turbulent few months which have seen sterling fall by 8% and wages growth slow. | A vote to stay would benefit the economy after a turbulent few months which have seen sterling fall by 8% and wages growth slow. |
| The 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.” | “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.” |