The head of the International Monetary Fund, Christine Lagarde, has hit back at the claim of Brexiteers that the Fund badly misjudged the economic impact of the referendum vote.
Speaking in London at the launch of the Fund’s annual assessment of the UK economy, Ms Lagarde, insisted the IMF’s pre-referendum warnings and forecasts had been broadly vindicated.
“Regrettably, the numbers that we are seeing the economy deliver today are actually proving the point we made a year and a half ago when people said you are too gloomy and you are one of those ‘experts’,” she said, in an apparent reference to Michael Gove’s claim that the British people have “had enough of experts”.
“Unfortunately we were not too gloomy – we were on pretty much on the mark,” Ms Lagarde said.
“Our forecast actually turned out to be the reality of the economy, which is one where sterling has depreciated, inflation has depreciated, wages have been squeezed as a result and investment has been slowed down and certainly lower than we would expect it to be.”
In a document published shortly before the vote, the IMF forecasted that in a “limited” impact scenario for the Brexit vote (in which trade talks started smoothly) would reduce UK GDP growth in 2017 from 2.2 per cent to 1.4 per cent and from 2.2 per cent to 1.8 per cent in 2018.
In its latest forecasts published on Wednesday the IMF has pencilled in 1.6 per cent growth in 2017 and 1.5 per cent for 2018.
What is true is that the Fund’s latest 2017 forecasts for the UK are better than the 1 per cent GDP growth it was expecting in October 2016, reflecting the fact that growth did hold up better in the immediate wake of the Brexit vote than most economists had anticipated.
Ms Lagarde singled out the UK’s business investment performance this year as particularly disappointing, given the fact that the global economy is picking up speed.
“With the global economy as it is, and the space of the UK has in it, it should be rolling at 6 per cent, [but] it’s at 2.1 per cent.”
The IMF’s June 2016 document had also included an “adverse” Brexit scenario in which the UK economy would contract in 2017 by 0.8 per cent and grow by just 0.6 per cent in 2018 – effectively a serious recession.
This was predicated on the UK’s EU negotiations collapsing and the UK eventually crashing out of the bloc without a trade deal.
In May 2016 Ms Lagarde had said that possible Brexit vote outcomes would range from “pretty bad to very, very bad”.
The IMF’s latest forecast suggests that the UK’s potential productivity growth is only 1.5 to 1.6 per cent, down from 2 to 2.25 per cent before the referendum.
It is understood that around half of this downgrade is attributable to Brexit, in the form of lower investment, weaker net immigration, less foreign direct investment and diminished trade.