Hammond: Global Economy Faces Brexit 'Shadow'

The world economy will be darkened by a two-year Brexit "shadow", Philip Hammond has told Sky News.

Speaking on the fringes of the G20 finance ministers' meeting in Chengdu - his first overseas visit as Chancellor - Mr Hammond acknowledged the decision to leave the EU would "hang over the world economy" until at least 2018.

However, the Chancellor signalled he had already had early discussions with the Chinese about a possible trade deal.

Intriguingly, he also opened up the possibility that when it comes to establish new trading relationships with the rest of the world, Britain might join an "existing agreement" such as the Trans-Pacific Partnership - a US-Asia trade pact.

Mr Hammond's comments came at the end of a G20 meeting which was dominated by the issue of the referendum.

According to insiders, Mr Hammond spent much of the weekend trying to explain the decision and its implications to his counterparts both inside and outside the formal meetings.

In his interview with Sky News, Mr Hammond said: "It was a shock to the economic system. It was not something that markets or businesses were expecting.

"So obviously there was going to be a reaction, a response to that.

"And because there will now be a fairly lengthy negotiating period, there is going to be uncertainty about the outcome hanging over the world economic outlook for perhaps the next couple of years."

Asked if that implied a "two year shadow from Brexit", he said: "Yes, and it's not the only shadow the world economy faces. This is one of many sources of uncertainty."

Mr Hammond said the Chinese, with whose authorities he has been meeting, viewed the referendum result as an opportunity.

Asked whether that meant a bilateral deal with China or even entering the TPP (a US-Asia deal which has also been joined by Canada and Australia, among others), he said: "Our options are very wide at the moment.

"We know we can't legally enter into new trade agreements until the point where we exit the EU, which could be two, two-and-a-half years down the line.

"We have time to look at the options, to negotiate agreements, to discuss the terms on which we could enter existing agreements.

"At the same time there are very exciting opportunities opening up with China, with Australia, with India, and with many other countries."

The comments underline that while he has already had preliminary conversations with the Chinese about a bilateral deal, Britain may also consider joining an existing pact - such as the TPP or maybe the Transatlantic Trade and Investment Pact (the EU-US deal) - rather than fashioning a brand new one.

The US trade negotiator, Michael Froman, recently said that such a move was quite plausible.