How UK's economic growth will be affected if PM's new Brexit deal is approved

18 October 2019, 16:43 | Updated: 18 October 2019, 18:08

Britain has already absorbed almost all the economic pain of Brexit.

But if parliament approves Boris Johnson's new deal on Saturday, the UK may face no imminent downgrades to its growth forecast, the International Monetary Fund's (IMF) chief economist has told Sky News.

In an exclusive interview on the fringes of the IMF's annual meetings, Gita Gopinath said if the draft deal agreed by the UK government and the EU is approved by parliament on Saturday, it will be unlikely to compromise its forecast for UK economic growth which sees Britain growing at a faster rate than Germany or France this year and next.

Ms Gopinath said a free trade deal with the EU, such as the one the government is aiming for with its agreement, would imply that in the long term the UK economy would be two percentage points weaker than it would otherwise have been.

However, she pointed out that the majority of this had already been absorbed, with the Fund calculating that UK gross domestic product is now 2.5 percent lower as a result of the cutbacks to investment and activity since the 2016 referendum.

"We've been poring through the details and trying to work out how this compares with our baseline," she said.

"We're assuming there was going to be a free trade agreement with the UK and EU. It looks like what we have in our [forecast] is similar to what's in the current agreement."

In the run-up to the referendum, the IMF published a number of scenarios for the UK economy, some of which forecast a possible recession in the event of a no-deal Brexit.

However, Ms Gopinath said most of the pain associated with the adjustment had already happened.

"You've had weakness in investment and GDP has been lower by about 2.5 percent over 2017 to 2019 because of this uncertainty. In the long run we think in the case of a free trade area there's a cumulative effect of 2 percent.

"A lot of the negative impact was front-loaded. So we might see less going forward. And getting rid of this uncertainty will be helpful."