"October 27th 2016 marks the day that the Remain economic argument collapsed."
The June IMF Country Report had shocking warnings about the effect of the UK leaving the EU.
The first part of the IMF report is a list of reasons why the IMF argued the UK should vote Remain. The UK has voted Leave so these are historical. The important point now is whether the IMF predictions for Brexit were correct.
The second part of the report considered that the main risk for the UK economy lay between the EU Referendum and Brexit. The uncertainty during this period was supposed to severely damage the UK economy in 2016/17:
The IMF considered two scenarios about the UK leaving the EU. The first, "Limited" scenario is where the UK becomes an EEA member like Norway and the second, "Adverse" scenario, is where the UK becomes an independent WTO member outside the EU (EEA) group in the WTO.
The UK government has made it clear from July that the WTO option is the most likely although there is massive campaigning from the broadcast media and SNP for a Single Market option. In terms of "uncertainty" this is the worst possible outcome. Theresa May has even publicly announced that the WTO option is most likely.
The UK GDP for 2016 was 0.4% in quarter 1, 0.6% in quarter 2 and now estimated at 0.4% for quarter 3. It is on target for 1.8% for 2016.
The UK is doing far better than the IMF predictions:
The current data for UK GDP is shown on the graph below:
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Update: The IMF withdrew its predictions for disaster in January 2017:
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The EU referendum does not seem to have had any effect at all on GDP. Notice that the IMF predicts strong growth once Brexit actually happens in 2019. Those who are campaigning for the Single Market and a second referendum cannot be doing so for financial reasons. The IMF are predicting that if the UK can dodge a recession due to "uncertainty" the future outside the Single Market is rosy. The GDP figures for the third quarter were released on October 27th and, at 0.5% for quarter 3 (2% per annum) are slightly better than the IMF baseline. October 27th marks the day that the Remain economic argument collapsed.
The IMF predicted a drastic rise in inflation:
The IMF were predicting twice the level of CPI inflation that seems likely now that Quarter 3 figures are available for 2016 of 0.7%.
The IMF actually predicted an improvement in the UK trade balance with the WTO option:
The data are not yet available to check this prediction.
The IMF also stated that unemployment would rise and wages would fall but these have been steady since the referendum:
Pay is steady or rising:
Unemployment is falling.
The IMF predictions were about "uncertainty" after the referendum. This uncertainty has not happened. David Cameron said that "Article 50" of the Treaty on European Union would be invoked the day after the referendum if a "Leave" vote occurred. However, the issuing of Article 50 is simply a notice of intention to the EU and is far less serious than the Leave vote itself. The IMF believed Cameron and so used Art 50 as shorthand for "intention to Leave the EU" but as you can see from the text below, Art 50 in itself is just a note to the EU.
Article 50
1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.
All of Table 1:
The June IMF Country Report had shocking warnings about the effect of the UK leaving the EU.
The first part of the IMF report is a list of reasons why the IMF argued the UK should vote Remain. The UK has voted Leave so these are historical. The important point now is whether the IMF predictions for Brexit were correct.
The second part of the report considered that the main risk for the UK economy lay between the EU Referendum and Brexit. The uncertainty during this period was supposed to severely damage the UK economy in 2016/17:
 |
| IMF Predictions - Now known to be wrong |
The UK government has made it clear from July that the WTO option is the most likely although there is massive campaigning from the broadcast media and SNP for a Single Market option. In terms of "uncertainty" this is the worst possible outcome. Theresa May has even publicly announced that the WTO option is most likely.
The UK GDP for 2016 was 0.4% in quarter 1, 0.6% in quarter 2 and now estimated at 0.4% for quarter 3. It is on target for 1.8% for 2016.
The current data for UK GDP is shown on the graph below:
Update: The IMF withdrew its predictions for disaster in January 2017:
The EU referendum does not seem to have had any effect at all on GDP. Notice that the IMF predicts strong growth once Brexit actually happens in 2019. Those who are campaigning for the Single Market and a second referendum cannot be doing so for financial reasons. The IMF are predicting that if the UK can dodge a recession due to "uncertainty" the future outside the Single Market is rosy. The GDP figures for the third quarter were released on October 27th and, at 0.5% for quarter 3 (2% per annum) are slightly better than the IMF baseline. October 27th marks the day that the Remain economic argument collapsed.
The IMF predicted a drastic rise in inflation:
The IMF were predicting twice the level of CPI inflation that seems likely now that Quarter 3 figures are available for 2016 of 0.7%.
The IMF actually predicted an improvement in the UK trade balance with the WTO option:
The IMF also stated that unemployment would rise and wages would fall but these have been steady since the referendum:
Pay is steady or rising:
Unemployment is falling.
The IMF predictions were about "uncertainty" after the referendum. This uncertainty has not happened. David Cameron said that "Article 50" of the Treaty on European Union would be invoked the day after the referendum if a "Leave" vote occurred. However, the issuing of Article 50 is simply a notice of intention to the EU and is far less serious than the Leave vote itself. The IMF believed Cameron and so used Art 50 as shorthand for "intention to Leave the EU" but as you can see from the text below, Art 50 in itself is just a note to the EU.
Article 50
1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.
All of Table 1:
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