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Brexit warning from IMF, Bank of England

LONDON: May 12, 2016. As former Mayor of London Boris Johnson begins his ‘Brexit’ tour of Britain on a bus made by the MAN Group in Germany and Poland (examples below), the Bank of England has echoed an IMF report that warns a vote to leave the European Union (EU) could materially affect Britain’s future economic output and rate of inflation.

The Bank estimates that roughly half of the 9.0 percent fall in sterling since its November 2015 peak could be accounted for by risks associated with a vote to leave the EU.

With greater uncertainty about the UK’s future trading relationships, it says sterling is expected to depreciate further, “perhaps sharply”.

German busIn its latest Monetary Policy report, the Bank notes a ‘no’ vote could see a drop in household consumption and companies delay investment decisions as asset prices fall - resulting in tighter financial conditions and increasing unemployment.

“Taken together, the combination of movements in demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation,” it said.

According to international courier company ParcelHero, any attempt to replace the loss of EU access by increasing trade with Brazil, Russia, India and China will cost companies an average £163,000 per annum in higher transport costs, tariffs and extra bureaucracy.

Head of Consumer Research David Jinks explained: “The reason why small businesses are less keen to trade beyond the comfort of the EU is not hard to fathom. Brazil is currently suffering economic and political difficulties; 
Russia does not allow courier shipments to private addresses, only business ones; India has some steep tariffs: 125 percent for a CKD car kit for example; while China has tough Customs clearance procedures - and its growth rate is slowing.

“So what do these figures tell us? UK products will struggle to be competitive in many overseas markets. And further, were the UK to de-link its duty structure from the EU’s common 
external tariff, other nations considering trading with us might find an independent UK’s unique tariff structure equally bewildering and unattractive,” Jinks concluded.

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