United Kingdom : 2016 Article IV Consultation-Press Release; and Staff Report

The UK economy has performed well in recent years, but it faces important challenges and risks. Economic growth has consistently been near the top among major advanced economies, the employment rate has risen to a record high, the fiscal deficit has been reduced, and major financial sector reforms have been adopted. Nonetheless, the economy still faces vulnerabilities, including those related to possible shocks to global growth and asset prices; property markets that have been buoyant in recent years; a wide current account deficit and low household saving rate; and uncertainty about the degree to which productivity growth will recover. In the near term, the largest risks and uncertainties relate to the upcoming EU referendum. Given the importance of the referendum, this report and the accompanying Selected Issues paper include analysis of the referendum's potential macroeconomic implications for the UK and the global economy, while recognizing that this choice is for UK voters to make and that their decisions will reflect both economic and noneconomic factors. This analysis finds that the economic effects of an exit would likely be negative and substantial for the UK. In this event of a vote to leave the EU, policies should be geared toward supporting stability and reducing uncertainty.