United Kingdom Article IV Press Conference — Managing Director’s Opening Remarks

IMF News, September 17, 2018

Source details

Canonical URL: United Kingdom Article IV Press Conference — Managing Director’s Opening Remarks

World Economic Outlook (July) projected global growth of 3.9 percent for this year and the next.
The IMF noted that risks had increased, and that growth appeared to have peaked in some major economies and become less even.
Forecasts will be updated in early October, during the annual meetings.

UK growth projection: about 1½ percent this year and next.
Growth has slowed from about 1¾ percent in 2016 and 2017.
The slowdown since the referendum is driven primarily by Brexit-related effects.
Despite modest growth, employment continues to reach record levels, and the unemployment rate is near historic lows.
Sterling’s post-referendum depreciation has depressed real income growth and consumption.
Exports have picked up thanks to the weaker currency but not enough to prevent overall slowing of growth.

The IMF considers leaving the EU without an agreement on the framework for the future economic relationship and an implementation period to get there to be the most significant near-term risk to the UK economy.
Projections assume a timely agreement with the EU on a broad free trade pact and a relatively smooth Brexit process after that; a more disruptive departure will have a much worse outcome.
All likely Brexit scenarios carry costs for the UK economy (and to a lesser extent for the EU) compared with today’s smooth single market; the larger the impediments to trade in the new relationship, the costlier it will be.
The IMF highlighted tentative agreement on an implementation period as notable progress, but many critical issues remain unresolved, most significantly:
- a political agreement on the future economic relationship between the UK and the EU
- the status of the Irish land border
The IMF encourages both the UK and the EU to work diligently to reach agreement on these open issues to avoid a very costly cliff edge Brexit.
The IMF emphasized the importance of the tentatively-agreed implementation period coming into effect and the need for cooperation and coordination on priority issues to achieve a smooth transition.

Long-term budget pressures from population aging are an important challenge, common to other advanced economies.
Productivity is a particular concern:
- In 2016, the average UK worker produced about 25 percent less per hour than an American, French or German worker.
- The IMF noted that boosting productivity in the UK is the key to durably raising living standards.
The UK’s strengths that can help address these challenges include solid institutions, highly credible fiscal and monetary policy frameworks, and flexible labor markets.

Avoid a no-deal Brexit; reach agreement on the framework for the future economic relationship and secure an implementation period.
Continue preparatory work for life outside the EU, addressing a daunting range of issues under time constraints.
Ensure cooperation and coordination with the EU on priority issues affecting everyday life (e.g., travel, access to medications).
Pursue policies to boost productivity to raise living standards over the long run.
Address long-term fiscal pressures associated with population aging.

IMF — United Kingdom Article IV Press Conference, Managing Director’s Opening Remarks, September 17, 2018.