Brexit turbulence and pound's 31-year low causes UK economy to fall behind France

IMF rankings refute Theresa May's recent claim that the UK is the fifth-largest economy in the world

Wednesday 05 October 2016 17:06

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Brexit uncertainty will 'weigh on growth'

The UK has fallen below France in the global table of economic powers due to uncertainy over Brexit.

The latest World Economic Outlook report ranks the UK in eighth place weighting £1,932 billion, while France sits behind Germany in fourth with a weighting of €2,228 billion (£1,967 billion).

Suggestions that Britain will leave the single market and clamp down heavily on immigration have been blamed for pulling the rug from under the sterling, leaving it at a post-Brexit low of €1.14.

In the IMF's latest projections, UK growth is predicted to slow to 1.8 per cent this year and to 1.1 per cent in 2017, down from 2.2 percent last year. The slowdown is largely a result of the uncertainty following the Brexit referendum in June, which is expected to take a toll on investor confidence.

Meanwhile, the Eurozone is expected to expand 1.7 per cent this year and 1.5 per cent next year.

Maurice Obstfeld, IMF chief economist and economic counsellor, said: "The Brexit vote is an obvious development that we didn't expect a year ago. It's created a lot of uncertainty about the ultimate shape of creating relationships between the United Kingdom and the EU 27 and that uncertainty will probably weigh on growth."

It comes days after Prime Minister Theresa May claimed the UK would get a good deal with the EU because Britain was the fifth-largest economy in the world, a statement later echoed by both the Chancellor Philip Hammond and Foreign Secretary Boris Johnson.

While Mrs May's claim was technically accurate at the moment she made it - with sterling worth €1.16 at the end of last week - the latest forecasts show that Britain no longer occupies such an illustrious position.

In terms of gross domestic product per person, the IMF ranked Britain as only the 27th richest nation, with Qatar and Luxembourg taking the two top spots.

In terms of the global economy, the IMF predicted it will expand 3.1 per cent this year, unchanged from its July projection. Next year, growth will increase slightly to 3.4 per cent on the back of recoveries in major emerging market nations, including Russia and Brazil. These forecasts are below what they were in 2015.

What experts have said about Brexit

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1/11What experts have said about Brexit

The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”

Reuters

Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”

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Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”

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JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"

PA

Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”

Reuters

IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”

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Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”

EPA

President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”

Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"

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US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"

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American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”

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Advanced economies will expand just 1.6 per cent in 2016, less than last year’s 2.1 per cent pace and down from the July forecast of 1.8 per cent.

The IMF said that its forecast reflects a more "subdued" outlook for advanced economies following Britain's vote in favour of leaving the EU and weaker-than-expected growth in the US, stating these developments have put "further downward pressure on global interest rates".

On the world economy, Mr Obstfeld said: “Taken as a whole, the world economy has moved sideways. We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world.”

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