- The IMF has talked down the UK’s economy before – but has been consistently wrong in past forecasts about the UK and other countries.
- There is no substantive evidence that the referendum has created uncertainty.
- The IMF’s forecasts released today show UK growth to be robust, better than the Eurozone this year, and better than advanced economies next year.
- The real risk to the UK economy is staying attached to the failing Eurozone, which the IMF acknowledges is ‘weak’ and a ‘concern’.
- Many of the other IMF claims about the effect of a leave vote on sterling and trade are mistaken.
- The EU institutions want to take the UK’s seat on the IMF. The European Parliament is calling for this today and the Commission has set out detailed plans to make this change. The safer choice is to Vote Leave.
Responding to the publication of the April 2016 ‘World Economic Outlook’ by the International Monetary Fund (IMF), Vote Leave Chief Executive Matthew Elliott said:
‘The IMF has talked down the British economy in the past and now it is doing it again at the request of our own Chancellor. It was wrong then and it is wrong now. The irony is that if we Vote Remain our voice at the IMF will be silenced as the EU wants to take our seat at the top table in return for the £350 million we hand to Brussels every week.
‘The biggest risk to the UK’s economy and security is remaining in an unreformed EU which is institutionally incapable of dealing with the challenges it faces, such as the euro and migration crises.’
The IMF has today published the ‘World Economic Outlook’ for April 2016.
The IMF has been consistently wrong about its forecasts for the UK economy. It is wrong now.
- The IMF has tried to talk Britain’s economy down before – but its negative forecasts for the UK economy have been consistently wrong. In 2013 the IMF’s chief economist, Olivier Blanchard, warned that Britain’s growth forecasts were very low. When challenged, the Chief Economist responded: ‘I am right and they are wrong’. His estimates turned out to be inaccurate and UK growth was much stronger than he predicted.
- The IMF later had to accept that it was wrong about its warnings for the UK. Christine Lagarde later admitted that she had ‘underestimated’ the strength of growth when the IMF assessed the UK economy in 2013.
- The IMF has made other major errors of forecasting. In June 2013, the IMF was forced to admit it had issued ‘economic projections that were too optimistic’ about its joint austerity programme with the EU in Greece.
- Even the Head of the IN campaign has dismissed siren voices like the IMF’s. The Chairman of the IN campaign, Lord Rose of Monewden, has admitted that there are no short-term risks in voting to leave, stating: ‘Nothing is going to happen if we come out of Europe in the first five years … There will be absolutely no change … It’s not going to be a step change or somebody’s going to turn the lights out and we’re all suddenly going to find that we can’t go to France, it’s going to be a gentle process’.
There is no substantive evidence for the IMF’s claim that the referendum ‘has alreadycreated uncertainty for investors’. The IMF appears to be saying that David Cameron and George Osborne were wrong to hold a referendum.
- The Prime Minister has said that the referendum has not caused uncertainty. In November 2014, the Prime Minister told the CBI conference that: ‘The worst thing for us to do as a country is to pretend this European debate isn’t happening … If there has been uncertainty, why is it that this has been such an extraordinary period of investment into this country?’. In 2013, he said opponents of the referendum’s ‘whole argument about there being uncertainty is fatally undermined‘ and that a vote on the EU ‘is right for business, it is right for our economy’.
- The UK has the highest growth in the G7. The OECD has forecast that the UK will be the fastest growing economy in the G7 in 2016, with growth of 2.1%.
- There is a record number of vacancies in the UK. The ONS reports that: ‘There were 768,000 job vacancies for the 3 months to February 2016. This was: 10,000 more than for September to November 2015 [and] 26,000 more than for a year earlier’.
- The independent Office for Budget Responsibility (OBR) has been clear there is no substantive evidence of uncertainty, despite the IMF’s claims. The IMF has claimed for months that the EU referendum would lead to uncertainty. The IMF made a high-profile intervention in February when it warned that the referendum would create uncertainty. They were completely wrong – just a few weeks later the OBR stated that ‘there were only tentative signs of uncertainty regarding the EU referendum result affecting investment intentions by the time we closed this forecast and we have made no adjustment to reflect a change in behaviour’.
The IMF’s own forecasts show UK growth to be robust, better than the Eurozone this year, and better than advanced economies next year.
- In the IMF report (p.2), the UK is forecast to grow at 1.9% in 2016, the average rate for ‘advanced economies’. This is above the rate of growth in the Eurozone (1.5%) (p.36).
- In 2017, the UK is forecast to grow at 2.2%, higher than average (2.0%) for ‘advanced economies’.
- The UK’s growth prospects for 2016 have been downgraded along with every other country in the G7. This is because of global factors. As the Governor of the Bank of England has stated, these are the biggest risks to the UK economy: ‘In my judgment, the global risks, including from China, are bigger than the domestic risks’.
- The IMF has identified ‘headwinds from fiscal consolidation’ as one of the reasons why UK growth has been downgraded. This has nothing to do with the referendum.
The European Parliament has suggested that the UK should cease to have a voice in the IMF. This will be voted on today.
- In a report last month, the European Parliament calls for the EU to ‘seek full membership of international economic and financial institutions where this has not yet been granted and is appropriate (e.g. in the cases of the OECD and the IMF)’.
- The report states that there should be ‘a single European Union constituency in the long term‘, with voting in the EU Council ‘moving away from consensus to a weighted majority voting system’.
The European Commission has already announced it intends to silence the UK’s voice in the IMF.
- The EU’s blueprint for further integration and future Treaty change, the Five Presidents’ Report, calls for common EU representation ‘in the international financial institutions’ rather than letting individual member states speak for themselves. It suggests that the EU’s ‘fragmented voice means the EU is punching below its political and economic weight’ and specifically singles out the IMF as one such example.
- In October 2015, the European Commission proposed a Council Decision to establish unified representation of the euro area in the IMF. The draft Decision, on which the UK will not have a vote, states that: ‘Close cooperation with non-euro area Member States shall be organised within the Council and the [Economic and Financial Committee], on matters related to the IMF. Common positions shall be coordinated on matters relevant for the European Union as a whole’ .
The European Court will force this through.
- In an October 2014 decision, the European Court ruled, rejecting the UK’s arguments, that the EU may require the UK to adopt a common EU position in an international organisation of which the EU is not a member, provided that the subject matter of the decision relates to an EU legislative competence. As a result, the UK was forced to adopt an EU common position in International Organisation of Vine and Wine.
- Since the EU has legislative competence over financial services, the UK could be forced to adopt a common EU line in the IMF whenever the EU wants.
The real risk to the UK economy is staying attached to the failing Eurozone.
- The IMF states that: ‘the euro area, the persistence of low inflation and its interaction with the debt overhang is also a growing concern’ (p.24).
- The IMF notes that: ‘in the euro area, the risk of a deanchoring of inflation expectations is a concern amid large debt overhangs in several countries’ (p.xv).
- The IMF observes that in the euro area: ‘potential growth is expected to remain weak, as a result of crisis legacies (high private and public debt, low investment, and eroding skills due to high long-term unemployment), ageing effects, and slow total factor productivity growth’ (p.18).
- The IMF notes that: ‘with persistently high youth unemployment rates in many countries, skill erosion and its effect on trend employment are palpable concerns … The European Union also needs a more effective economic governance framework’ (p.29). This contradicts claims by the Prime Minister that the economic governance of the EU has been reformed.
- The Governor of the Bank of England has also stated ‘we do think that there are risks of remaining in the European Union’, and that these manifested themselves ‘in particular, in relation to the development of the euro area. The Governor affirmed this statement in response to John Mann MP, stating: ‘UK membership of the European Union brings risks‘.
- The former Governor of the Bank of England, Lord King of Lothbury, recently warned that the Eurozone ‘might explode’.
The IMF are wrong to suggest the pound is being weakened by the prospect of the referendum.
- The pound is strengthening. There is no evidence that the increased prospect of leaving the EU is having a substantial effect on the currency or is driving movements in the foreign exchange markets. The pound has been strengthening against the US dollar over the last month from $1.3871 (26 February) to $1.4238 (12 April). The pound is much higher today (€1.2523) against the euro than it was at the time of the Bloomberg speech (€1.1506 on 1 February 2013).
- Leaving the EU would reduce the current account deficit, and therefore ease pressure on sterling. In 2014 (the last year for which data are available) the UK recorded a £12.3 billion balance of payments deficit with the EU institutions. ONS figures released in March 2015 show the UK Government paid the EU institutions (net) £10.6 billion in 2015 (this figure excludes payments by the private sector to the EU institutions). This means we could substantially cut the current account deficit if we Vote Leave. The EU-funded Oxford Economics group has concluded that if the UK voted to leave the EU, ‘In most cases (five out of nine), the UK’s trade balance improves’.
The IMF wrongly states that ‘negotiations on post exit arrangements would likely be protracted’.
- Greenland left the EU in less than three years with a free trade agreement (FTA) covering its major exports. Greenland voted to leave the then European Economic Community on 23 February 1982. The Treaty amending, with regard to Greenland, the Treaties establishing the European Communities was signed at Brussels on 13 March 1984. The Treaty entered into force on 1 February 1985 . This provided for the abolition of tariffs, quotas and measures equivalent to quotas on Greenland’s principal export, fish products.
- The US-Australia FTA was concluded in less than two years: Formal negotiations for a free trade agreement began in Canberra on 18 March 2003. The agreement came into effect on 1 January 2005. The US Government states that ‘as a result of the U.S.-Australia Free Trade Agreement, tariffs that averaged 4.3 percent were eliminated on more than 99% of the tariff lines for U.S. manufactured goods exports to Australia’.
- The Switzerland-China FTA was negotiated in just over two years: There were 9 rounds of negotiations between April 2011 and May 2013 which ‘produced a deal praised by both sides for its quality and its breadth, covering goods, services, investment, and competition. The agreement entered into force on 1 July 2014.
The IMF claims leaving the EU would ‘damag[e] a wide range of trade and investment relationships.’
- The Prime Minister has said this is false. He has admitted: ‘If we were outside the EU altogether, we’d still be trading with all these European countries, of course we would… Of course the trading would go on. Sometimes … There’s a lot of scaremongering on all sides of this debate. Of course the trading would go on’.
- The UK’s former Ambassador to the EU has contradicted this claim. The UK’s former Ambassador to the EU and leading supporter of BSE (Britain Stronger in Europe), Lord Kerr of Kinlochard, has admitted: ‘there is no doubt that the UK could secure a free trade agreement with the EU. That is not an issue’.
- The CBI disagrees with it. The pro-EU CBI has said: ‘the UK is highly likely to secure a Free Trade Agreement with the EU, and such an agreement would be likely to be negotiated at an extremely high level of ambition relative to other FTAs’.
- The Head of the IN campaign says other trade deals could continue. Trade with third countries will not be disrupted. Even the Executive Director of the BSE campaign, Will Straw, has accepted that free trade agreements with third countries could continue, stating: ‘either eventuality could come to pass’.
- The UK would gain new trading and investment opportunities if we Vote Leave. Outside the EU’s common commercial policy, the UK could strike free trade agreements with emerging economies such as Brazil, India and China which the EU has consistently failed to negotiate. This will be good for jobs, growth and living standards.
Analysis suggests that the economy will grow if we Vote Leave.
- In a recent report for the CBI, PwC had to admit that employment will grow if we Vote Leave. It also stated that ‘our model estimates suggest that [t]otal real UK GDP could be around 36-39% higher in 2030 than in 2015 in the two exit scenarios’. The paper also admits that growth will continue in the short term and that, in the long term, economic growth will be stronger outside the EU compared to remaining inside.
Christine Lagarde is facing serious criminal allegations. She should address these before interfering in the UK referendum.