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UK Will Have To Pay Heavy Price For Brexit: IMF Study

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The International Monetary Fund warned that if Britain leaves the European Union, the country will have to pay a heavy economic price for it, and those costs would be unevenly spread across different sectors and regions.

A Country Report on the United Kingdom by the IMF European Dept., cited in an IMF blog, has measured the potential volume of loss the country will incur in various sectors.

The British parliament is hotly debating Prime Minister Theresa May's withdrawal agreement after three government defeats.

The Brexit deal has been endorsed by EU leaders but it needs the UK Parliament's approval to come into force. The crucial vote is set for December 11.

The United Kingdom is set to leave the European Union on 29 March, 2019. Ministers say that if MPs reject their deal they increase the chances of the UK leaving without a deal, or not leaving the European bloc at all.

Being a member of the EU means that the country enjoys a frictionless trade arrangement embodied in the European single market and customs union. After exit, barriers to trade in goods and services would increase while labor mobility would fall, the report says.

The EU is the UK's largest trading partner, accounting for nearly half of the UK's trade in goods and services. For example, 56 percent of cars produced in the UK are exported to the EU and about one-fourth of UK-produced financial services are related to EU clients.

The study estimates that leaving the EU will cause higher trade barriers, lower migration, and lower foreign direct investment flows for each economic sector in the UK.

If the UK and EU agree on a broad free trade pact, UK output will be about 2.5 to 4 percent lower in the long run compared to a no-Brexit scenario. This translates into a cost of about £900 to £1300 ($1150 to 1660) per capita.

In a "WTO" scenario, the UK will lose any preferential access to the EU market and adopts WTO tariff schedules for trade in goods.

This will lead to larger decline in real output, between 5 and 8 percent in the long run, due to higher trade barriers, potential reductions in FDI flows, and lower net migration, the study estimates.

Among manufacturing sectors, the study pinpoints chemicals and transport equipment would be most affected due to potentially big increases in trade barriers and their significant integration in the European production supply chain.

Financial services output could fall by 15 percent in the FTA scenario.

Labor availability in sectors that rely more heavily on migrant workers, both low and high skilled, could be affected by future changes in immigration policy.

IMF also warns of a prolonged period of higher structural unemployment, reversing some of Britain's impressive employment gains of recent years.

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