Even Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF) was out of breath about new of the Brexit:
“We take note of the decision by the people of the United Kingdom. We urge the authorities in the U.K. and Europe to work collaboratively to ensure a smooth transition to a new economic relationship between the U.K. and the EU, including by clarifying the procedures and broad objectives that will guide the process.
“We strongly support commitments of the Bank of England and the ECB to supply liquidity to the banking system and curtail excess financial volatility. We will continue to monitor developments closely and stand ready to support our members as needed.”
The conventional wisdom is the the world’s 5th largest economy by GDP ($3 billion last year) is in trouble. And, the IMF warned as much recently:
The UK economy has performed relatively well in recent years, with economic growth consistently near the top among major advanced economies and the employment rate at a record high. However, growth has slowed somewhat in the first part of 2016, as heightened uncertainty ahead of the referendum on EU membership appears to be weighing on investment and hiring decisions.
In a baseline scenario in which the UK remains in the EU, growth is expected to recover in late 2016, as referendum-related effects wane, and to average around 2.2 percent over the medium term. Inflation is expected to rise gradually from its current low level (0.3 percent as of May 2016), as disinflationary effects from past commodity price falls dissipate and as tighter labor markets and minimum wage hikes help push up wages.
A look at the OECD evaluation of the U.K.: economy is that it will continue to make progress, if
Growth has slowed, and is projected to be 1¾ per cent in 2016. Uncertainty about the outcome of the end-June 2016 referendum, which could lead to an exit of the United Kingdom from the European Union (Brexit), has undermined growth. This projection assumes that the United Kingdom remains in the European Union, in which case growth is projected to pick up in the second half of 2016 and then stabilise in 2017. The unemployment rate has fallen to around 5%. The current account deficit has reached 7% of GDP, the highest level on record, increasing vulnerabilities.
Fiscal consolidation is planned to continue, but its pace will ease to below 1% of GDP per year over the projection horizon, which is appropriate given a weaker economic outlook. Capacity pressures have abated and should remain contained, but the recent exchange rate depreciation will push up prices. This projection assumes interest rate normalisation will start in early 2017.
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