International Monetary Fund Managing Director Christine Lagarde capped a week of warnings by heavy-hitting supporters of Britain staying in the European Union, all unanimous in their view of the dire consequences of a so-called Brexit.
Rejecting accusations she is taking sides in a referendum debate that’s divided Prime Minister David Cameron’s Conservative Party, Lagarde said the IMF’s role is to highlight economic risks -- and that Brexit is an international rather than just a domestic issue.
"We’re just doing our job, and we have a mission," Lagarde told a press conference at the Treasury in London on Friday as the IMF published its annual assessment of the U.K. economy "It’s sometimes called tough love, which is to actually say things as we see them."
Lagarde’s intervention is the culmination of a week of warnings delivered by supporters of the “Remain” campaign, including Cameron, his predecessor, Gordon Brown, Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Carney, who said on Thursday that a vote to leave the EU could cause a recession. With polls suggesting the June 23 referendum could go either way, the pro-EU camp sees the economy as its trump card.
A Brexit could lead to a “protracted period of heightened uncertainty,” triggering financial-market volatility and hurting economic output, the Washington-based IMF said in the report. It could also erode London’s position as a financial center and cause “sharp” falls in house and equity prices. Uncertainty is already hitting investment and hiring decisions and economic activity, it said.
The process of a renegotiation of Britain’s trading relationships “could well remain unresolved for years, weighing heavily on investment and economic sentiment during the interim and depressing output,” the IMF said. “In addition, volatility in key financial markets would likely rise as markets adjust to new circumstances.”
"We are not doing it out of politics, that is not the job of the IMF," Lagarde said. "We are doing it because there is a significant downside risk. It’s not just a domestic issue. It is an international issue. I don’t think in the last six months I have visited any country in the world where I have not been asked what will be the consequences."
Lagarde also backed the Bank of England’s warning a vote to leave could trigger a “technical recession,” defined as two consecutive quarters of falling economic output.
As Cameron and Brown stressed the potential risk to security and peace in Europe, Carney on Thursday delivered his strongest Brexit warning yet as BOE policy makers cut their growth forecasts. A day earlier, Osborne said the central bank and the Treasury were putting in place contingency plans to manage potential shocks in financial markets.
Illustrating another risk from Brexit, Irish Prime Minister Enda Kenny told Bloomberg Television on Friday that there was no guarantee other EU nations would be particularly accommodating to the U.K. if it leaves the 28-country bloc. That echoed a warning on Thursday from German Finance Minister Wolfgang Schaeuble that a vote for “out means out” and can’t be “used as a leverage to get a better deal.”
Brexit campaigners reacted angrily to latest endorsement of staying in the EU, calling the IMF’s track record “laughable.”
"It’s high time to audit the elites and start judging them on the basis of their performance, not their undeserved prestige,” Arron Banks, co-founder of Leave.EU, said in an e-mailed statement. The IMF’s “forecasts are never right, it backed the euro and it didn’t see the financial crisis coming.”
While online polls suggest the contest is too close to call, less frequent telephone polling has put the “Remain” camp ahead. Still, political analyst Matt Singh’s Number Cruncher Politics Referendum Forecast has shown the probability of an unprecedented British exit from the EU creeping up to 22 percent this week from 20 percent late last month.
The IMF warned that investors anticipating the adverse economic effects of the U.K. quitting the bloc could also accelerate the impact of a vote to leave, potentially entailing “sharp drops in equity and house prices, increased borrowing costs for households and businesses, and even a sudden stop of investment inflows into key sectors such as commercial real estate and finance.”
By contrast, it said that economic growth is expected to rebound during the second half of the year in the event of Britain staying in the EU.