The International Monetary Fund says Brexit was a big mistake.
In a report issued Tuesday, the bank predicted that as a result of Britain’s decision to exit the European Union, the U.K economy will grow 0.2 percentage points slower, or 1.7%, this year and 0.7 percentage points slower, or 1.3%, in 2017. Notably, this means that the British economy will avoid a recession, despite many analysts predictions that leaving the EU would plunge Great Britain and Northern Ireland into negative growth.
The IMF argued that the reason the U.K economy will grow slower boils down to increased uncertainty. “This uncertainty is projected to take a toll on confidence and investment, including through its repercussions on financial conditions and market sentiment more generally,” the report reads. The basic idea is that British businesses will hold off on new investment projects until they understand what the trade rules between the U.K. And the rest of the world will be.
Other analysts aren’t so pessimistic, however. On Thursday, the Bank of England released the July 2016 update of its Summary of Business Conditions, which surveys U.K. Businesses on their attitudes toward the economy. According to the report, few businesses are planning to leave the U.K. As a result of the vote and most firms are “seeking to maintain ‘business as usual’.” In fact, some businesses even “mentioned the possibility of moving production back to the United Kingdom, or increasing the domestic sourcing of products, in light of sterling’s fall.” Britain’s central bank did say, however, that a majority of the firms it polled “expected some negative effects” with regards to future investment in the U.K. As a result of the decision.
(For more on Brexit, read Coins2Day’s Choice Your Brexit Adventure game.)
Nobel Prize winning economist Paul Krugman also recently argued against the idea that Brexit would cause short-term harm to the U.K. Economy. “While there are clear reasons to believe that Brexit will make Britain somewhat poorer in the long run, it’s not completely obvious why this should lead to a recession in the short run,” he wrote in a recent blog post.
