Brexit would not bring fiscal benefits to UK, rather the opposite, IMF says

The short-term outlook for the UK economy is relatively positive, the International Monetary Fund said, under the assumption that the country opts to remain within the European Union.

The Washington-based Fund's economists estimated the rate of growth in gross domestic product would slow from the 2.3% pace observed in 2015 to a 1.9% clip in 2016 and 2.2% in 2017.

In parallel, the rate of unemployment was expected to continue to decline, from 5.4% in 2015 to 5.0% in 2016, even as the government deficit and net debt as a proportion of GDP continued to narrow.

However, the current account deficit was forecast to remain at -5.0% of GDP at the end of 2016.

Likewise, while observing that the choice on membership of the European Union was for UK voters to make and that their decisions will reflect both economic and non-economic factors, the IMF cautioned the net economic costs of Brexit were likely to be "negative and substantial", though there was significant uncertainty about their precise magnitude.

Depending on the estimate used, by 2019 UK GDP was seen between just over 1.0% to 6.0% below where it otherwise would be.

Large disparities among the estimates of the long-run impact on GDP from Brexit were the result of differing assumptions about the UK’s future economic relationships with the EU and the rest of the world, the IMF said.

Nonetheless, the IMF estimated that any fiscal benefits arising - possibly - from not having to contribute to the EU's budget would likely be more than cancelled-out by the loss of tax receipts resulting from reduced economic output as trade and investment are hit.

As regards regulations, the IMF went on to say that instead of becoming less restrictive and more 'pro-growth' the truth might be exactly the opposite, as "domestic special interests may be able to more easily capture regulatory decision-making following an exit."

Reduced trade and financial flows could also conceivably lead to a plethora of efficiency losses for the UK economy resulting from fewer opportunities to specialise and reap profits from economies-of-scale, for example.