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IMF warns Brexit and housing market threaten UK economic progress

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The International Monetary Fund has warned the upcoming Brexit vote and the housing market both threaten to derail the UK’s recent economic progress.

In a note issued on Wednesday, the crisis lender highlighted that Britain’s economic engine had been growing steadily in the wake of decent private domestic demand, supported by rapid job growth, with unemployment falling to 5.1 per cent in late 2015.

In the medium term it expects GDP expansion to continue and to average around 2.2 per cent.

The IMF also anticipates that inflation, running at a very low 0.3 per cent in January, will pick-up slowly as disinflationary effects from past commodity price falls and sterling appreciation ease and wages rise.

However, it believes this relatively benign scenario is “subject to risks and uncertainties, including those related to the global outlook, sluggish productivity growth, a weak external position, still-high levels of household debt and the forthcoming referendum on EU membership”.

The UK will go to the polls on 23 June and the IMF is urging authorities to remain vigilant to the challenges ahead and to continue their efforts “to promote growth and further boost resilience”.

In addition it emphasised that ensuring the safety of the UK financial sector “is critical for maintaining domestic and global financial stability”.

However, notwithstanding some recent deceleration in house prices and efforts to boost supply and contain housing-related risks, the IMF says house price pressures remain elevated, posing continued challenges.

IMF directors stressed the buoyant housing market requires ongoing efforts to “contain macroprudential risks and address long-standing supply problems”.

They note that further measures may be necessary if the reduction in high loan-to-income mortgages does not continue.

Directors are also encouraging the authorities to extend the Financial Policy Committee’s powers of direction to the buy-to-let market to mirror those they currently have over the owner-occupied market.

The organisation also says ongoing efforts to reduce housing supply constraints, such as changes to planning processes, have improved prospects for increasing supply but require continued attention to implementation.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I have yet to see one international economic or business forum (or indeed any other country) espousing BREXIT. This must surely send a message – even to the most obdurate Little Englanders.

  2. And Ms Lagarde has always been so accurate in the past with her assessments and predictions.

  3. Institute of Economic Affairs
    “It’s clear that EU membership is neither a necessary or sufficient condition for good economic growth — domestic policy is far more important. The EU question is largely a political question about where sovereignty should reside.”

    Chief Economic Adviser, Official Monetary & Financial Institutions Forum
    ” In the medium term, I am more optimistic. The UK is a small, open, globalised economy and the growing areas of the world are outside Europe”

    Lombard Street Research
    “The key thing in Europe is whether a country is in the euro or not — and Britain, fortunately, is not.”

    DeAnne Julius, former MPC member, now Chair of UCL
    “I would expect a month or two of financial market volatility to follow a Leave vote, and anxiety by certain business segments, but not a significant hit to growth in either the short or medium term”.

    Chief UK Economist, Capital Economics
    ” Just as the potential gains from leaving have probably been overestimated, so have the potential costs. We think that the UK will do well whether in or out of the EU”

    Peter Warburton, Chief Economist of Economic Perspectives
    “Brexit is likely to have little impact in the medium term on UK growth. The money that is currently being used to pay the UK`s EU contribution could potentially be diverted into funding a tax cut to improve competitiveness and potentially cutting corporation tax, for example.”

    Forbes
    “Three-quarters of small businesses in the Federation of Small Businesses’s research said the issue of EU governance would be a key factor in how they eventually vote. That might be considered good news for the leave campaign, since the lack of democracy and accountability in the EU’s decision-making process is a theme with many of its critics.

    Best regards,
    A Little Englander

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