A predictable exit from the European Union would be better for the U.K. economy than a “crash situation”, the IMF’s Christine Lagarde told CNBC.
London and Brussels are kicking off negotiations to define how the U.K. will leave the bloc next week and uncertainty is the dominant factor. It is not yet clear whether the U.K. will seek to keep some access to the EU’s single market or its customs union or if both will manage to draft a new trade deal, among other big question marks.
Asked to explain the difference between a soft and hard Brexit, Lagarde said: “It’s the big difference between the unpredictability the uncertainty and that’s the crash situation you described and a predictable transition towards a new status.”
“Clearly, what is more predictable, more certain, can be calibrated, can be anticipated, can be transitioned into, is going to be more reliable and safer for the people and the economy,” she told CNBC exclusively on the sidelines of a meeting in Luxembourg.
In April, the Fund warned that the unpredictability surrounding Brexit poses a risk to global financial stability. It forecast at the time, the U.K. economy would expand 2 percent in 2017, before gross domestic product declines to 1.5 percent in 2018.
“Though highly uncertain, medium-term growth prospects have also diminished in the aftermath of the Brexit vote because of the expected increase in barriers to trade and migration, as well as a potential downsizing of the financial services sector amid possible barriers to cross-border financial activity,” the Fund said in its World Economic Outlook report last April.
However, the institution is unable to calculate precisely how the British economy will suffer from Brexit because it has still to define its future arrangements with the EU.
“We need to better understand the terms under which this exit is going to take place for us to really forecast the economic development going forwards,” Lagarde told CNBC.