Britain could enter into a recession if it leaves the European Union without a formal trade deal, the International Monetary Fund (IMF) warned last week. The IMF is of the view that economic growth will slow down irrespective of any deal Britain reached over trade and tariffs with the European bloc.

The strongly-worded IMF report warned that a “more disruptive departure”, in which Britain leaves the EU and trades only on the basis of World Trade Organisation rules (which would require negotiations with 63 different countries) could cause the British economy, the fifth-largest in the world, to go into recession as investment and trade flows stall in the months following a so-called ‘hard Brexit’ in March 2019. On the other hand, the IMF is forecasting UK growth of 1.5 per cent this year and next if a broad Brexit agreement is reached.

Meanwhile, a report by the Office for National Statistics showed on Wednesday that UK inflation, as measured by the Consumer Price Index (CPI), unexpectedly rose to the highest level in six months during August, as it inched up to 2.7 per cent from 2.5 per cent in July. Economists had expected a CPI rate of 2.4 per cent. Wages are still rising faster than inflation, with data last week showing that wages, excluding bonuses, grew by 2.9 per cent in the three months to July. Rising prices for recreational goods, transport and clothing underpinned the August price increases. Month-on-month, consumer prices climbed by 0.7 per cent, faster than the 0.5 per cent forecasted by economists. Core inflation, which excludes food, energy, alcoholic beverages and tobacco, rose to 2.1 per cent in August from 1.9 per cent in July.

Finally in the US, a National Association of Home Builders/Wells Fargo monthly report showed that confidence among American homebuilders was unchanged in September, indicating that the housing market may be stabilising after signs of a slowdown in recent months. The headline sentiment index was unchanged at 67 in September and bucked analysts’ estimates for a decline to 66. Last December, confidence among new home builders peaked at 74, a 20-year high, marking the complete reversal of a 13-year cycle that began in July 2005 with the peaking of the housing bubble and its subsequent bursting.

This report was compiled by Bank of Valletta for general information purposes only.