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IMF Warns UK on Brexit Impact

IMF Warns UK on Brexit Impact

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The International Monetary Fund has warned that a UK vote on June 23 to leave the EU could hurt the British economy. In a report released on Friday, the IMF said that the impact of “Brexit” could cause the UK's economy to contract 1% - 9% over the long term, noting that the heightened uncertainty could lead to market volatility and hit productivity and investments in the UK.

Weekly Review

More and more financial institutions are expressing concerns about the impact of a Brexit on the UK's economy. This week, the Bank of England in its monetary policy meeting left interest rates unchanged and also released the inflation report. The central bank raised inflation forecasts through September and expects UK's inflation to rise to 2.10% in 2018, technically ruling out a rate hike in the near term. This week saw the UK's industrial and manufacturing production post a modest recovery as manufacturing production edged 0.10% higher while industrial production increased 0.30% on a month over month basis. However, on a yearly basis manufacturing was down 1.90%. On Friday, UK's construction output fell 3.60%, missing forecasts of a 2.80% decline with February numbers revised to -0.90% from -0.30% respectively.

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The Week Ahead

In the Eurozone, there were some positive data points this week with Germany at the helm. Trade balance numbers showed a surplus led by foreign demand and first quarter GDP estimates showed the German economy grew at a pace of 0.70% beating forecasts of 0.60%. Inflation was however tame for the month. Meanwhile, in the Eurozone GDP growth was soft, rising 0.50% in contrast to initial estimates of 0.60%. On a yearly basis, Eurozone GDP was at 1.50% in the first quarter, compared to previous estimates of 1.60%. Greece was briefly in the news as the parliament managed to pass controversial reforms on taxes and pensions as part of the deal to unlock 86 billion euros in the third bailout that the country will receive. A decision is expected to be taken by the Eurogroup ministers by May 24th.

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