A ‘benign’ Brexit forecast from the IMF?

Given the grim protestations of the IMF prior to Brexit some might be surprised to see the forecaster’s view on the UK economy post the referendum.

Back then the IMF boss Christine Lagarde had Chancellor George Osborne at her side. His “Remain” message was very clear and Mrs Lagarde duly warned an exit would be “pretty bad to very, very bad.”

But today the tone seems to have changed.

Here’s the bad news. The IMF has downgraded its growth forecasts for the UK economy by nearly a percentage point for 2017 as well as shaving off a less severe 0.2 per cent for this year. The downgrade was the largest for any advanced economy and the organisation cut its forecast for global growth too, this year and next, but not by much. Brexit, it said, had thrown a “spanner in the works” for plans to slightly upgrade the global forecast thanks to a pick up in activity in China, Brazil and Russia.

But crucially, rather than the doom and gloom scenario some had been predicting, there was a hint of good news.

The IMF now says it’s working on a “benign” assumption for the UK economy which sees a “gradual reduction in uncertainty going forward”. The main reason for this seems to be that the financial markets — while shocked at first by Brexit — have since calmed down and any panic has been contained.

So, the IMF now believes the UK will manage to reach an agreement with Europe and the political fallout will be limited.

Of course, as with all economic predictions, the IMF adds a healthy dollop of caveats.

Notably, its “benign” outlook “may fail to materialise and….more negative outcomes are a distinct possibility.”

But the most extreme of those negative outcomes — the IMF’s so-called “severe” forecast where the UK ends up in recession, has become “less likely”.

The IMF is covering its bases because, as it points out, with Brexit still unfolding, it’s very difficult to quantify its potential repercussions. But for now, at least, it has concluded the outlook may not be so bad for the UK as its own boss had claimed.

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