Unimaginable for UK to leave EU without a deal, says IMF chief

Christine Lagarde says quicker progress is needed in talks over Britain’s EU exit and people must be put before business.

Christine Lagarde, the managing director of the International Monetary Fund , has said it is unimaginable that Britain would leave the EU without a deal in March 2019, as she called for faster progress in the slow-moving Brexit talks.

Speaking in Washington on Thursday to mark the start of the IMF’s annual meeting, Lagarde said negotiators had to put the interests of people before those of business, and that there was a need to end uncertainty.

Her words came as there were fresh signs that talks between the Brexit secretary, David Davis, and the EU’s chief Brexit negotiator, Michel Barnier, are deadlocked over the size of the UK’s divorce bill, which is delaying the start of negotiations on a future trade agreement.

Asked what she thought the impact on Europe would be of Britain falling back on World Trade Organisation rules, Lagarde said: “I just cannot imagine that that will happen, because for the people themselves, what does it mean?

“The Europeans who are based in the UK and the British who are residing in the EU, WTO does not provide for such eventualities.

“When I think of the airline industries, the landing rights in various European countries … There is so much that has been brought together between the continent and the UK that it requires a very specific approach which will reduce the uncertainty that is damaging potential.”

The IMF considers a cliff-edge Brexit to be one of the main risks to what Lagarde called a fragile recovery in the global economy. Although the fund’s prediction of an immediate recession following the EU referendum in June 2016 proved overly pessimistic, it has revised its UK forecasts for 2017 and 2018 down since the start of the year, while becoming more upbeat about the eurozone.

“Brexit is an ongoing process and our hope is that it be conducted promptly to reduce the level of uncertainty and the anxiety of people about the outcome and the situation of people first, of business second. Because this is affecting the people and the businesses,” she said.

Lagarde said she supported Theresa May’s idea of an implementation period of about two years after Britain’s formal exit from the EU, but that there also needed to be progress on the EU’s three key issues: money, citizens’ rights and the Irish border.

“I don’t know if the two-year transition is going to be agreed upon as was proposed by prime minister May in her Florence speech, but certainly clarity on the timetable and better certainty on the three pillars which are the beginning of the negotiations would help reduce this uncertainty,” she said.

Lagarde said the recovery in the global economy was more broadly based than it had been at any time since the start of the financial crisis a decade ago, but was still not complete.

It was “time to mend the roof while the sun was shining”, she said, pointing to the need for higher spending on research and development, reduced barriers to growth, and labour market reforms to tackle weak productivity and stagnant wages.

Lagarde said raising taxes on high earners, as suggested by the IMF’s fiscal affairs department, would help address inequality without prejudicing growth, but that the most effective way of reducing the gap between rich and poor would be to tackle gender inequality. “That’s a no-brainer”, she said.

Jim Kim, the World Bank president, backed Lagarde’s call for action to make economies better placed to withstand future problems.

“Trade is picking up, but investment remains weak. We’re concerned that such risks as a rise in uncertainty, policy uncertainty or possible financial market turbulence could derail this fragile recovery,” he said.

“This is the time to implement the reforms that are going to insulate against potential downturns in the future.”

Kim is trying to persuade a sceptical Donald Trump of the need to increase funding for the World Bank. He said the money was needed to meet growing demand for its services.