IMF warns against no-deal Brexit, as trade war fears weigh on markets - as it happened

The International Monetary Fund warns that Brexit is hurting UK growth, and things could get a lot worse...

• Lagarde: No-deal Brexit would hurt growth and weaken the pound
• BREAKING: UK faces massive Brexit workload, says IMF
  
• IMF: UK would be weaker under any Brexit deal
• Hammond: We need to heed IMF's warning

5.22pm BST

And finally, a quiet day's trading on Britain's stock market has ended.

The FTSE 100 index closed just two points lower at 7,302 (or down a barely noticeable 0.03%).

The FTSE had a slightly choppy day, with a mid-morning recovery cut short by the US markets starting to slide as US-China tensions escalated again.

A set of different media reports is coming from the US, most of them still unconfirmed, saying that the US might tone down its initial plans to introduce a 25% tariff on $200 billion worth of Chinese goods and instead bring in tariffs of only 10%. Other news reports are more prominently carrying President Trump's comments about how the tariffs have put the US in a good negotiating position. Amidst all of this China is saying that it will respond in kind to any US move but more worryingly is threatening to walk away from near term negotiations altogether, which would cement the tariff system for the time being.

5.20pm BST

The Labour Party has now weighed in, urging chancellor Philip Hammond to hammer home the IMF's warning to his cabinet colleagues.

John McDonnell MP, Labour's Shadow Chancellor, says:

"Today the IMF has underlined the warnings that we've already heard from trade unions and business organisations about the damage that a cliff edge Brexit would do to our economy.

"Once again I call on the Chancellor to show some leadership and make it clear to his colleagues that he will not accept a no deal Brexit and the damage it risks doing to jobs, wages and living standards in this country".

2.14pm BST

Time for a recap:

The International Monetary Fund has warned that Britain's economy will be hit hard if the country leaves the EU without a deal.

"If that happened there would be dire consequences. It would inevitably have consequences in terms of reduced growth, an increase in the [budget] deficit and a depreciation of the currency.

"In relatively short order it would mean a reduction in the size of the economy."

Related: IMF chief highlights recession risk of no-deal Brexit

The massive scope of work that remains and the limited time before the UK exits the EU would likely leave preparations incomplete on departure day despite even the most determined efforts.

2.08pm BST

In a worrying sign for Britain's auto industry, 3,000 staff at Jaguar Land Rover's plant at Castle Bromwich are moving to a three-day week.

My colleague Rob Davies reports:

The news came hours after the carmaker was accused of "scaremongering"about the impact of Brexit by a Conservative MP. JLR, owned by the Indian conglomerate Tata, said it had made the decision to reduce production in the light of difficult conditions in the automotive industry, amid sluggish demand.

A spokesperson said: "In light of the continuing headwinds impacting the car industry, we are making some temporary adjustments to our production schedules at Castle Bromwich.

Related: More than 3,000 Jaguar Land Rover staff will go to three-day week

1.53pm BST

Just in, growth in New York's factory sector has slowed this month.

The Empire manufacturing index of business conditions has dropped to 19 this month, sharply down on August's 25.6. Firms reported a slowdown in new orders, and a rise in costs -- perhaps a sign that the trade war is hurting.

US empire manufacturing for September 19.0 vs 23.0 expected https://t.co/U0BRf8jgnx pic.twitter.com/Tj6tZtrN8j

1.41pm BST

The IMF have now uploaded Christine Lagarde's opening statement at today's Article Four press conference on the UK economy.

Here's the key section, on Brexit:

For the UK, we are projecting growth of about 1 percent this year and next , down from about 13/4 percent in 2016 and 2017. As we noted last year, Brexit-related effects are the driving factor for the slowdown in growth since the referendum. This has occurred despite strong policy frameworks and implementation. Uncertainty about the future economic environment has weighed on investment, despite still robust global growth and easy financing conditions, while the post-referendum depreciation of sterling has depressed real income growth and consumption. While exports have picked up thanks to the weaker currency, they have not done so by enough to prevent an overall slowing of growth. Despite the more modest growth, however, employment continues to reach record levels, and the unemployment rate is near historic lows.

Our projections assume a timely agreement with the EU on a broad free trade pact and a relatively smooth Brexit process after that. A more disruptive departure will have a much worse outcome. Let me be clear: compared with today's smooth single market, all the likely Brexit scenarios will have costs for the UK economy , and to a lesser extent for the EU, as well. The larger the impediments to trade in the new relationship, the costlier it will be. This should be obvious, but it seems that sometimes it is not.

Managing Director Christine Lagarde's opening remarks at the press conference for the UK Article 4 consultation in London today https://t.co/w4Li068xLb pic.twitter.com/3Z7jC6atCU

1.02pm BST

The BBC have helpfully tweeted two video clips of Christine Lagarde speaking this morning.

Here she is, explaining how all the possible Brexit scenarios have a cost for the UK economy, and Europe too.

Christine Lagarde: "All the likely Brexit scenarios will have costs for the UK economy, and to a lesser extent the EU"

IMF chief warns no-deal #Brexit carries greatest risk to UK economy https://t.co/qoZfwsMeLJ pic.twitter.com/1EJW7Ju581

Christine Lagarde: No-deal #Brexit would lead to "reduced growth, increased deficit, depreciation of the currency"

IMF chief warns of grave consequences if Britain leaves EU without a deal https://t.co/HKfrsQyRrF pic.twitter.com/sWWd3Y8RHq

1.00pm BST

Theresa May's official spokesman has played down the IMF's claim that a no-deal Brexit would be very costly for Britain.

The Press Association has the details:

Chancellor Hammond said the report underlined the need for a Brexit deal to ensure the economic gains of the past decade were not lost.

"We are at a critical juncture for the UK economy. Despite the contingency actions we are taking, leaving without a deal would put at risk the substantial progress the British people have made over the last 10 years," he said.

12.31pm BST

Geraint Johnes, Professor of Economics at Lancaster University Management School, has warned that the IMF's new forecasts could be too optimistic.

"The IMF forecast of 1.5% growth for UK GDP both this year and next comes on the same day as some even more pessimistic forecasts from the British Chambers of Commerce (who are now forecasting 1.1% and 1.3% growth in 2018 and 2019 respectively). In both cases, risks posed by Brexit are to the fore.

The IMF emphasises actions which the UK needs to take, specifically in the arenas of productivity and regional development, to stimulate improved growth. While, in the Industrial Strategy and the Northern Powerhouse, the government has measures in place, these have necessarily taken a back seat over the last two years, and renewed efforts are needed."

12.08pm BST

Meanwhile in America, Donald Trump is awake...and threatening that countries who don't trade fairly will be "tariffed":

"A lot of small & medium size enterprises are registering very good profit, sometimes record profits-there stocks are doing very well, low income workers are getting big raises. There are an awful lot of good things going on that weren't during Pres. Obama's Watch." Peter Morici

Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country - and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be "Tariffed!"

Our Steel Industry is the talk of the World. It has been given new life, and is thriving. Billions of Dollars is being spent on new plants all around the country!

11.20am BST

Labour MP David Lammy MP says the IMF's gloomy forecasts prove that the UK should hold a second referendum on Brexit.

Lammy, who supports the Best for Britain campaign, says:

"The IMF report proves beyond doubt that the Tories' plans would act as a sledgehammer to the UK economy. The substantial costs would weigh disproportionately on those with the least.

"It's not fair on the most vulnerable in this country. The Prime Minister might try to trumpet this report as a victory for her Chequers plan, but doing so would be to deceive the British people. She and the Brexit extremists who have held a gun to the country's head should take responsibility for this entire mess.

11.02am BST

Here's more snap reaction to the IMF press conference.

Reuters has focused on Christine Lagarde's warning that a no-deal Brexit would be bad for growth:

UK economy would contract without #Brexit deal-#IMF's Lagarde https://t.co/hA1DOXXKhH @david_milliken

The IMF has just said that every single type of Brexit outcome will incur costs to the UK.

Who will bear the brunt of this? Won't be those who sold the Brexit dream, they'll be unaffected, it'll be normal people who will deal with the consequences of these costs.

IMF's @lagarde says that all Brexit deals will lead to a weaker economy than we have now. #IMF #Brexit

Christine Lagarde also added that she's a 'desperate optimist'. #IMF

Lagarde hints the IMF may cut its global growth forecasts at its annual meetings next month: "Clouds on the horizon have not become not lighter but darker"

10.43am BST

Q: You says Britain faces "daunting' Brexit challenges, so would a 21-month transition period actually be long enough?

Christine Lagarde replies that any extension to the proposed transition arrangement would be welcomed by those officials charged with negotiating new deals.

10.41am BST

Q: Does the IMF believe there will actually be a Brexit dividend, or not?

Christine Lagarde says Britain faces a short-term cost from Brexit, and a separate long-term dividend, which arrives gradually over time.

The UK will be permanently smaller [after Brexit], and that means permanently lower revenues.

10.40am BST

Q: What should policymakers do, if Britain leaves the EU without a deal?

Lagarde reiterates that a a No deal Brexit would be a severe supply shock to UK economy.

10.36am BST

On the workload issue, Lagarde says Britain needs to negotiate 63 trade deals in case there is a no-deal Brexit. That's a "heck of a lot of work", she says dryly.

10.34am BST

Christine Lagarde says she "hopes and prays" that there will be a deal between the UK and the EU (on her last visit, she said a no-deal Brexit was unimaginable).

Lagarde: I'm a desperate optimist and I very much hope and pray there will be a deal between EU & UK. We've been side by side, together in so many ways so I hope that thanks to strong efforts of all parties involved we will reach a deal.

10.33am BST

Q: Would a no-deal Brexit push the UK into recession?

Christine Lagarde says the IMF's economists are working on its forecasts for different Brexit scenarios, and will present them to its Board in November.

10.30am BST

Q: Could Britain could use a "Brexit dividend" to provide extra funding for the National Health Service (the Brexit bus pledge)?

Lagarde warns that any Brexit dividend won't come into the UK purse instantly, it will come over a period instead.

I don't think you can actually front-load what is due to come later to address a financing that is needed now.

10.27am BST

Q: Is the Brexit debate distracting politicians from tackling other economic problems?

Lagarde replies icily that Britain's productivity would certainly improve if the same level of passion directed at Brexit was put into tackling the productivity crisis.

10.24am BST

Christine Lagarde is now taking questions.

She declines to answer a question about a possible second referendum

"It would be a shock to supply, and would result in reduced growth, increased deficit, depreciation of the currency...and in reasonable short order, it would mean a reduction in the size of the UK economy.

"Any deal would not be as good as the smooth process under which goods, services, people and capital move between the EU and the UK without barriers, without impediments and obstacles.

Whatever the deal is will not be as good as it is at the moment.

10.19am BST

Christine Lagarde says that Brexit isn't the only challenge facing the UK.

Productivity is another bugbear. By the average Thursday afternoon, the average US or German worker has produced as much as a UK worker manages by Friday afternoon, she points out.

10.15am BST

IMF chief Christine Lagarde is now speaking.

She warns that a no-deal Breixt would impose very large costs on the UK economy.

10.11am BST

The IMF and the Treasury are holding a press conference in London now to discuss today's "Article IV" report.

Uk chancellor Philip Hammond speaks first, saying the UK economy is "fundamentally strong". He points out that that unemployment is at a 43-year low.

10.07am BST

Some instant reaction to the IMF's new healthcheck on the UK economy, and its Brexit warning:

Breaking: @IMF warns "a 'no deal' Brexit on WTO terms would entail substantial costs for the UK economy - and to a lesser extent the EU economies". Says challenges getting a deal done are "daunting" and warns against further interest rate rises. Ireland issue "remains unanswered"

IMF Article IV report: UK faces "daunting" task of preparing for no deal. Warns of the "massive scope of work that remains and the limited time"... ie, we won't be ready.

IMF in town for its annual check-up of the UK economy. Unsurprisingly, most of its update concerns Brexit. Growth forecast moderate this year and next. "A more disruptive departure from the EU could lead to a significantly worse outcome"

10.04am BST

The IMF also warns that a no-deal Brexit would be much worse for the UK than the negotiated exit which Theresa May is pushing for.

Today's report says:

Brexit negotiations have yielded agreement in principle on a 21-month implementation period. If ratified, this would allow important additional time to prepare for the new relationship between the UK and EU.

However, fundamental questions-such as the future economic relationship between the two and the closely-related question of the status of the land border with Ireland-remain unanswered. Resolving these issues is critical to avoid a "no deal" Brexit on WTO terms that would entail substantial costs for the UK economy-and to a lesser extent the EU economies-particularly if it were to occur in a disorderly fashion.

10.00am BST

Newsflash: The International Monetary Fund is warning that Britain faces a "daunting" list of challenges ahead of Brexit next spring.

Uncertainty over the terms of the EU withdrawal has weighed on private sector activity. Above-target inflation following the sharp post-referendum sterling depreciation has slowed real income and consumption growth.

Business investment has been lower than would be expected in the context of robust global growth and favorable financing conditions. The softening of domestic demand was partially offset by a higher contribution from net exports, supported by weaker sterling and strong external demand. Overall, growth fell to about 13/4 percent in 2016-17, moving the United Kingdom from the top to near the bottom of the G7 growth tables. The employment rate, however, continues to reach record highs.

A more disruptive departure from the EU could lead to a significantly worse outcome, especially if it were to occur without an implementation period. By contrast, an agreement featuring fewer impediments to trade than currently expected could buoy business and consumer confidence, leading to faster growth.

The range of remaining issues to prepare for Brexit is daunting, underscoring the importance of securing an implementation period.

The UK will have to bolster human, physical, and IT resources in customs and other services, and establish domestic agencies to replace EU ones. In addition, the government will need to renegotiate the hundreds of bilateral and multilateral international agreements to which it is now party via its EU membership. Many of the required tasks cannot be initiated until there is greater clarity on the future trade relationship with the EU or even until Brexit occurs.

9.52am BST

Jameel Ahmad, global head of currency strategy and market research at FXTM, says the US-China trade dispute is worrying investors as they returned to their desks today.

There is no disputing that one of the main contributors to the uncertain external environment is mixed messages when it comes to the status of trade talks between the United States and China. Conflicting reports remained a theme over the weekend when indications circulated that on one hand President Trump has provided the green light for additional Chinese tariffs being met, with other reports that Beijing was considering rejecting the offer from Washington to resume trade talks.

This ultimately suggests to investors that we are no closer to an "exit" door when it comes to prolonged trade uncertainty. As such, it wouldn't be a major surprise if investors remain "risk off" as trading for the week gets underway

9.11am BST

Boom! China's stock market has closed at its lowest level since 2014, as traders brace for fresh US tariffs.

Today's 1.1% slide takes the Shanghai Composite Index down to 2,651 points, the weakest point since late November 2014.

8.53am BST

European stock markets have opened cautiously, as trade worries weigh on investors.

Germany's DAX has dropped by half a percent, while the FTSE 100 has dipped a toe into the red.

European equity markets have started the week lower, following Asian markets down, as President Trump mulls new tariffs against China.

President Trump's style is to escalate the pressure to try and generate as much leverage as he can in any potential negotiation, but China may not play his game, with reports that they are considering pulling out of any trade talks, making it difficult to see a resolution to the tensions in the short term.

8.35am BST

8.25am BST

The Global Times newspaper, published by the Chinese Communist Party, has vowed to launch a 'beautiful' counterattack if the US imposes more tariffs.

Reuters has the details:

"It is nothing new for the U.S. to try to escalate tensions so as to exploit more gains at the negotiating table," the Global Times, which is published by the ruling Communist Party's People's Daily, wrote in an editorial on Monday.

"We are looking forward to a more beautiful counter-attack and will keep increasing the pain felt by the U.S.," the Chinese-language column said.

8.13am BST

Paul Donovan of UBS isn't impressed by the prospect of America slapping fresh tariffs on Chinese goods:

It is all change in the flip-flop world of US trade policy. Media reports suggest US President Trump will impose yet more taxes on Americans who dare to buy things partially made in China.

There are also reports China will refuse to attend trade talks with the US. This is not official - there are no tweets - but Asian markets reacted.

8.11am BST

Trade issues and their impact on the global economy are likely to dominate investor focus this week, says Stephen Innes of foreign exchange group OANDA.

Innes says Trump's push for fresh tariffs on Chinese goods could undermine Treasury Secretary Mnuchin's attempts to broker a trade deal with China.

China officials will continue to be frustrated. This good cop / bad cop routine continues to undermine Mr Mnuchin's efforts as it's still not clear if anyone other the Trump himself is commissioned to cut a deal.

And not too unexpectedly and quite ominously China could cancel the meeting.

7.55am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

President Trump's decision..is designed to give the US more leverage in discussions with China over allegations that Beijing coerces American firms into handing over valuable technology to Chinese peers.

"China is not going to negotiate with a gun pointed to its head."

Asia stocks tumble at beginning of week as trade war fears return. Tech also suffering profit taking after bouncing last week. Trump is reportedly planning a $200bn tariff announcement as soon as today, but possibly only at a 10% rate. US 10y yields steady at 3%. Metals weakening pic.twitter.com/rf8LXCF5DF

The president of the United States, Donald Trump is determined to put another $200 billion of tariffs on Chinese goods. There was some hope last week that the White House may be able to resolve this matter with Beijing in a more peaceful fashion.

China has made one thing clear for Trump that threats and such behaviour aren't going to work with the country. Under the current circumstances, there are real chances that the new set of negotiations may never begin. So far, the Chinese government has declined to resume the trade talks because Trump is telling his aid to prepare for the next round of trade tariffs. This is the prime reason that we have seen the stocks tumbled over in Asia and the same momentum is highly likely to continue over in the Europe.