Brexit trade deal can help UK growth: IMF's Lagarde
London (AFP) –
Britain's tepid growth can improve along with other advanced economies should a positive trade deal over Brexit be agreed with the European Union, IMF chief Christine Lagarde said Wednesday.
"The more the UK economy will be open to trade in general, the EU included, the more likely that productivity will go up and growth will increase," Lagarde told a press conference in London after the International Monetary Fund trimmed its UK growth forecast for this year and maintained its prediction for 2018.
"Clearly... the UK economy is losing out as a result of the decision" to exit the European Union, said Lagarde, as she dismissed suggestions that the IMF was "too gloomy" regarding its outlook.
In its report, the IMF trimmed its forecast for growth this year in the British economy to 1.6 percent, from the forecast of a 1.7 percent expansion it made in October.
The Fund, however, maintained its forecast 1.5 percent growth in gross domestic product next year.
"Developments with Brexit negotiations are a key uncertainty," said the IMF report.
"Faster-than-expected progress towards a mutually beneficial economic outcome could buoy confidence. On the other hand, a breakdown in discussions could lead to a disorderly exit from the EU and sharp falls in asset prices."
British Prime Minister Theresa May said Tuesday she wanted an "ambitious" Brexit trade deal with the EU.
May wants Britain to leave the EU single market and customs union, but forge a new "deep and special economic partnership" with the bloc.
However, the EU's chief negotiator Michel Barnier has warned that any deal would inevitably result in Britain's banks and financial companies losing rights to trade across the bloc.
- Supervisory co-operation -
At the same time, European banks will be able to operate under existing rules in the UK after Brexit, Bank of England governor Mark Carney outlined in a policy proposal announced Wednesday.
A total of 160 large international banks operate in the UK, with combined assets of £4.0 trillion ($5.4 trillion, 4.5 trillion euros), including 77 banks from the European Economic Area.
Banks and insurers will be able to operate as branches within the UK rather than opening subsidiaries, a distinction likely to make the Brexit transition smoother for the financial services industry.
In reference to the opening of subsidiaries, Carney told the British parliamentary Treasury Committee on Wednesday: "Now is not the time we have to say: glass half empty, 'subsidiarise'."
The proposal is however conditional on achieving supervisory co-operation with other EU countries.
Carney added: "If next year a hard Brexit looks likely, then those directions to 'subsidiarise' would be there."
The European Commission meanwhile said Wednesday that it wants a post-Brexit transition period, during which Britain must continue to obey EU rules, to finish at the end of 2020.
Talks on the post-Brexit transition period are to start in January, while negotiations on the future relationship between Britain and the EU, including steps towards an eventual trade deal, are due to begin in March.
On trade, the IMF report said that "an agreement that minimises tariff and non-tariff barriers and ensures that firms have access to the labour they need would best support growth".
It added: "Early agreement on a transition period would avoid a cliff edge exit in March 2019 and reduce the uncertainty facing firms and households."
© 2017 AFP