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BREXIT WATCH: IMF Adds To Stark Leave Warnings By Bank Of England

May 13, 2016

London (May 13)  The  Bank of England  moved itself to the centre of the  European Union  referendum battle after it trimmed growth guidance for the  UK  economy on Thursday and delivered its starkest warning thus far on the impact that leaving the EU could have on  Britain  , followed by similarly gloomy predictions from the  International Monetary Fund  .

 Mark Carney  , the governor of the  Bank of England  , warned the risks of leaving the EU "could possibly lead to a technical recession". In the minutes from the latest meeting of the Bank's rate-setting  Monetary Policy Committee  , the bank said a leave vote could cause economic growth and the pound to fall and unemployment to rise.

Prime Minister  David Cameron  said the warning amounted to a "very clear message" on the dangers of Brexit, while Chancellor of the Exchequer  George Osborne  said the  UK  had a "clear and unequivocal warning" from the MPC and the governor about the risks involved in leaving.

"The Bank is saying that it would face a trade-off between stabilising inflation on one hand and stabilising output and employment on the other," Osborne said.

"So either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods. This is a lose-lose situation for  Britain  . Either way, we'd be poorer," he added.

The warning was decidedly less welcome for the Leave side of the debate.  Jacob Rees-Mogg  , a Tory MP, called on Carney to resign, claiming the central bank has become unacceptably partisan. He claimed the bank's comments were equivalent to it announcing during an election campaign what the economic impact of either a Tory or  Labour  victory would be.

 Norman Lamont  , the former chancellor, said Carney would need to be careful "he doesn't cause a crisis". He added: "If his unwise words become self-fulfilling, the responsibility will be the governor's and the governor's alone."

 UK Independence Party  leader  Nigel Farage  also weighed in during a debate on LBC Radio. "  Mark Carney  is on the public payroll and is doing the government's bidding," Farage claimed, adding "the whole apparatus of government is being mobilised to tell us what to think."

A spokesman for Carney rejected criticism of the  Bank of England's  statements, saying the bank "had a duty" to make its judgements on any economic factors known.

The Remain campaign was given further support for its warnings on Brexit dangers on Friday by the  International Monetary Fund  , which said leaving the EU would result in a "protracted period of heightened uncertainty" for the  UK  , with a likely hit to output and "sizeable" long-term losses in income.

Global market reaction to a Leave vote in the  June 23  referendum is likely to be "negative and could be severe", warned the global finance body in a regular report on the  UK's  economic prospects.

The  IMF  said the negotiation of new trade pacts could take years, weighing on investment and economic sentiment, while  London's  position as a global financial centre would be "eroded".

Osborne welcomed the  IMF  report, saying it made clear a vote to leave the EU would cost the  UK  money.

"The  IMF  are very clear today - the hit to growth we could expect from a vote to leave would cost our public finances more than the amount we would gain from no longer contributing to the EU budget," Osborne said. "Put simply, the  IMF  says a vote to leave costs us money."

Beyond the debate over the  Bank of England's  forecasts, a further warning was issued by Transport Secretary  Patrick McLoughlin  , who said the farming and car industries in the  UK  could disappear, akin to the coal industry in the 1980s, in the event of a Brexit.

McLoughlin disputed comments made by  Iain Duncan Smith  , the former work and pensions secretary and Leave campaign leader, who claimed the EU was a "force for social injustice", suggesting  Britain's  membership increases the cost of living, lowers wages and restricts jobs.

McLoughlin argued the opposite, that the consequences of a leave vote "will not be shared out evenly" across society and that those at the lower end of the income spectrum will be hit hardest. "It’s the poorest in our society who will feel the chilling effect of uncertainty first."

Source: Reuters

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