IMF and BCC warn of economic consequences of Brexit uncertainty

There were two chilling warnings for the government on Monday as the International Monetary Fund warned that a 'no-deal' Brexit would be likely to lead to a recession for the UK economy, while the British Chambers of Commerce warned of further slower growth for this year and next.

The IMF forecast the economy will grow roughly 1.5% in 2018 and 2019, up from its predictions of 1.4% and 1.5% made earlier this year but compared to 1.75% growth in both years if the UK had not voted for Brexit.

However, IMF managing director Christine Lagarde said these projections assume a "broad free trade agreement and a relatively orderly Brexit process after that".

She warned that the consequences of a "disorderly" exit including reduced growth, an increased deficit and depreciation of sterling, leading to a reduction in the size of the UK economy.

Separately, the BCC lowered its gross domestic product growth forecast for 2018 from 1.3% to 1.1% and for 2019 from 1.4% to 1.3% due to a weaker trade and investment outlook. The prediction for 2020 was unchanged at 1.6%.

High upfront cost of doing business in the UK, paired with the ongoing uncertainty regarding Britain's relationship with the EU after its departure from the bloc in March 2019, were likely to stifle business investment and slow growth in key markets, the BCC said.

"Brexit uncertainty continues to weigh heavily on many firms, as most of the practical questions facing trading businesses remain unanswered," said Dr Adam Marshall, the British Chambers of Commerce's director general.

"The lack of precision on the nature of the UK's future relationship with the EU is lowering expectations for both business investment and export growth."

The BCC called for Downing Street to take action to help raise business confidence, cut costs and encourage investment.

Although the BCC warned that British businesses will face "significant" skills gaps, it also noted that the labour market should continue to be a source of strength for the UK economy, with unemployment said to remain close to record lows.

However, workers were said to be unlikely to experience any meaningful real wage growth in the immediate future as the gap between pay and price growth was forecast to remain negligible.