The UK’s exit from the European Union could cause “severe regional and global damage”, the International Monetary Fund has warned in its latest outlook Tuesday.
A so-called “Brexit” would disrupt established trading relationships and cause “major challenges” for both the UK and the rest of Europe, it said.
The IMF said the planned 23 June referendum had already created uncertainty for investors and a vote to exit would only heighten this.
It also cut its UK growth forecast.
The IMF now expects 1.9% growth in the UK this year, compared with its January estimate of 2.2%. For next year, it expects 2.2% growth, unchanged from its earlier forecast.
If the referendum were to decide in favour of leaving the EU the IMF would expect negotiations on post-exit arrangements to be protracted, which it warned “could weigh heavily on confidence and investment, all the while increasing financial market volatility”.
It also believes a UK exit from the EU would “disrupt and reduce mutual trade and financial flows” and restrict benefits from economic co-operation and integration, such as those resulting from economies of scale.
However, the Fund said that domestic demand, boosted by lower energy prices and a buoyant property market, would help to offset the impact on UK growth ahead of the EU referendum.
Vote Leave, the group campaigning for the UK to leave the European Union, criticised the IMF’s findings saying it had “been consistently wrong in past forecasts about the UK and other countries”.
“The IMF has talked down the British economy in the past and now it is doing it again at the request of our own Chancellor. It was wrong then and it is wrong now,” said Vote Leave chief executive Matthew Elliott.
“The biggest risk to the UK’s economy and security is remaining in an unreformed EU which is institutionally incapable of dealing with the challenges it faces, such as the euro and migration crises.”
Other major bodies’ assessments on the impact of a possible Brexit have been less severe than the IMF’s.
Credit ratings agency Moody’s recently said the the impact of the UK leaving the EU would be “small” and was unlikely to lead to big job losses.
But the CBI has warned a British exit from the EU – known as a “Brexit” – could cost the UK economy £100bn and nearly one million jobs.