Uncertainty over Brexit vote hurting United Kingdom economy, says International Monetary Fund

Uncertainty over Brexit vote hurting United Kingdom economy, says International Monetary Fund

European equity benchmarks were struggling for direction in early trade on Wednesday, the morning after the Republican tax bill moved a step closer to being signed into law and as investors eyed an assessment of Britain's economy due to be made by the International Monetary Fund (IMF) later in the day.

Lagarde also strongly defended pre-Brexit economic predictions which led current environment secretary Michael Gove to say Britain had "had enough of experts".

Speaking at the Treasury as the IMF announced the results of its annual health check of the United Kingdom economy, Lagarde hit back at those who lambasted the fund when predictions of an immediate post-referendum recession failed to come to pass.

While it said there had been some offsetting gains from higher exports following sterling's 10 percent decline after the European Union referendum, it concluded that in 2017 "output is expected to grow by 1.6 percent this year, broadly in line with our estimate of the economy's potential".

She said: "We were not too gloomy".

For 2018, the organisation maintained its forecast of 1.5% growth but said that soaring inflation will continue to pile pressure on real wages and consumer spending power.

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The IMF welcomed the progress in Brexit talks, which are expected to culminate in "understandings on a broad free trade agreement and on the transition process".

She said: "Since the start of this year, growth has slowed notably".

"The financial sector, which represents about 7% of GDP but accounts for about 10% of tax revenues and 14% of exports, may be particularly affected in the absence of an agreement that allows the majority of EU-facing financial services now provided from the United Kingdom to remain there", the report said.

While Prime Minister Theresa May last week secured an agreement on the first phase of Brexit negotiations, Lagarde said businesses need progress imminently on a transitional arrangement to allow them to plan ahead.

"[The sector] may be particularly affected in the absence of an agreement that allows the majority of EU-facing financial services now provided from the United Kingdom to remain there", it said.

"But the UK's public debt remains high at 87pc of GDP, so continued reduction in the deficit is critical to create further room to respond to future shocks".

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