The IMF’s Warning on ‘Brexit’

A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output. Following a decision to exit, the UK would need to negotiate the terms of its withdrawal and a new relationship with the EU—unless it abandoned single market access and relied on WTO rules, which would significantly raise trade barriers. It seems likely that ratification of a new deal would require unanimous consent of all EU member governments, making agreements subject to considerable political risks. As EU-level agreements also cover the UK’s trading relationship with 60 non-EU economies (and prospective arrangements with another 67 countries are in the works), the UK would also need to simultaneously renegotiate these arrangements, or else see them revert to WTO rules. These processes and their eventual outcomes could well remain unresolved for years, weighing heavily on investment and economic sentiment during the interim and depressing output. In addition, volatility in key financial markets would likely rise as markets adjust to new circumstances.