No-deal Brexit will cause ‘shock to supply’ of goods, shrink UK’s economy and reduce value of its currency, says IMF.

The International Monetary Fund (IMF) has warned Britain that it should expect “substantial costs” to its economy if it leaves the European Union without agreeing to transitional arrangements.

The United Kingdom is due to leave the EU on March 29, 2019, but London and Brussels have yet to strike a deal over the terms of the exit from the bloc, known as Brexit.

Prime Minister Theresa May has struggled to bridge a deep divide within her Conservative Party about how close a relationship Britain should have with the EU, and only agreed to a unified negotiating platform with her cabinet in July.

That has led to worries that Britain is heading for a “no-deal Brexit” that would see it revert to World Trade Organisation rules on trade and force it to pay tariffs on goods imported from the EU.

Speaking to reporters in London on Monday, IMF chief Christine Lagarde said the British economy would weaken under any outcome that involves leaving the bloc, but warned that a no-deal Brexit would cause an immediate slump.

“It will be a shock to supply,” Lagarde said at the presentation of an IMF annual report on Britain’s economic outlook.

She added that in “reasonably short order”, a “no-deal Brexit” would “reduce the size of the UK economy”.

“It would inevitably have a series of consequences in terms of reduced growth going forward; increased deficit, most likely … and depreciation of the currency,” said Lagarde, the IMF’s managing director.

The IMF predicted Britain’s economy would grow by about 1.5 percent a year in 2018 and 2019 – lagging behind Germany and France – if a broad Brexit agreement was struck.

Philip Hammond, the British finance minister, said the UK had made economic progress under May’s government, but it stood “at a critical juncture” as it entered the final stages of the Brexit negotiations.

“We must not put these achievements – and the prosperity of the British people – at risk,” Hammond said, urging his government to “heed the clear warnings of the IMF”.

While Hammond said he was confident that May would secure a withdrawal agreement within the next two months, he said Britain should “continue to prepare for all scenarios”.

“A no-deal scenario remains unlikely – but it is not impossible,” he said.

Six months to go

May has proposed to keep Britain aligned to EU rules in return for free trade in goods and an open border between the UK’s Northern Ireland and EU member Ireland.

In response, the EU has warned the UK that it can’t cherry pick aspects of membership in the bloc’s single market without accepting the costs and responsibilities.

Speaking to Al Jazeera, Thom Brooks, professor and dean at Durham University in the UK, said he “can’t believe” Britain is faced with such alarming IMF reports with only six months until Brexit.

“I am very surprised that the prime minister triggered Article 50 and started the UK down this very tight timetable to have a Brexit plan before she had a plan,” he said.

“It would be a lot more wise to put her cabinet together, agree on what they want to agree on Brexit and how to get there, and then trigger this process,” he added.

Article 50, part of the Lisbon Treaty signed between EU members in 2009, forms the constitutional basis for the 28-member organisation and includes within it five paragraphs pertaining to a country’s decision to exit the bloc.

Brooks said the risk of a “no-deal Brexit” is “so huge, I would not rule out the possibility of a snap election in the UK before Christmas”, on December 25.

All eyes are now on Austria’s Salzburg city, where May is hoping to win EU leaders around to her proposal at a meeting on Wednesday and Thursday.

On June 23, 2016, 52 percent of Britons voted in favour of ending the country’s 43-year membership with the EU and its predecessor the European Economic Community.