Tuesday 4 October 2016 7:27 pm

IMF U-turns on Brexit warning as UK poised to be fastest growing G7 economy this year

The International Monetary Fund said today that it expects the UK to be the fastest growing G7 economy this year, backtracking on its post-Brexit recession warning.

It comes despite an earlier prediction from the Washington-based fund that a Leave vote would plunge Britain into recession and crash its stock market.

The IMF now predicts Britain's gross domestic product will grow by 1.8 per cent this year, more than its other G7 peers including the US and Germany. But it expects the UK to suffer a Brexit vote shock next year when growth will be just 1.1 per cent.

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"Brexit is an unfolding event — the long-term arrangements in relations between the United Kingdom and the European Union will be uncertain for a protracted period of time," according to the IMF's half-yearly world economic outlook.

But it acknowledged that: "On the positive side, beyond a sharp depreciation of the pound, broader market reaction to the Brexit vote has generally been contained, with equity valuations and risk appetite recovering after an initial drop."

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The IMF's analysis published days before the EU referendum on 23 June warned that the economy could fall into recession, unemployment would jump and wages tumble if the UK votes to leave the European Union.

A vote to leave the EU would result in a protracted period of heightened uncertainty, leading to a hit to output," it said.

“The long-run effects on UK output and incomes would also likely be negative and substantial.”