The future after Brexit and what it means for the pound

On Tuesday 19th July, the International Monetary Fund (IMF) announced that Britain’s collective decision to leave the European Union has thrown “a spanner in the works” for its economy. The verdict came following the pounds continued fall against the dollar, euro and yen.

Further to the above statement, the IMF went on to announce that they were removing 0.9 percentage points from the previous economic forecast for Britain, estimating growth of 1.3% in 2017. The stark predictions from the IMF are not reserved purely to next year. The predictions for this year are equally negative. The IMF said that it forecast to increase by a total of 1.7% during 2016. This new figure is a decrease of 0.2% on the previous assessment which was made by the body in April.

In a statement, Maury Obstfeld, economic counsellor for the IMF, said “The first half of 2016 revealed some promising signs - for example, stronger than expected growth in the euro and Japan, as well as partial recovery in commodity prices that helped several emerging and developing economies. As of 22 June, we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works.”

This spanner has not only manifested in the above forecasts. The IMF also cut 0.1 percentage points from its forecast for global growth for 2016 and 2017, reducing them to 3.1% and 3.4% respectively. Criticism towards Brexit from the IMF was not reserved until the resolution of the referendum. The body warned that a vote to leave the European Union could have strong negative effects on the British economy. This was demonstrated through the body’s forecast that a vote to exit the European Union could result in a 5% reduction in the size of the economy, compared with a remain vote.

The impacts of IMF forecasts resulting from the Brexit vote were note purely limited to the UK. The forecasts for the Eurozone area of the European Union were also negatively affected. The forecast for 2016 remained unchanged, however a reduction of 0.2 percentage points was made to its 2017 forecast for the area. This new forecast placed growth in the Eurozone area at 1.4% for 2014.

The IMF have also been closely monitoring the state of affairs in other countries in recent months. Most notably Turkey, following its failed coup. However, the IMF feel confident that the resultant market volatility would subsequently “settle down.”