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.
The IMF used its closely-watched World Economic Outlook report to slash its forecast for UK economic growth and warned if Britain were to leave the European Union it “could do severe regional and global damage by disrupting established trading relationships”.
It is the Fund’s first formal warning about the economic problems threatened by the forthcoming referendum, although its managing director, Christine Lagarde, has warned a number of times that Britain’s departure would cause instability.
The report said the referendum “has already created uncertainty for investors”.
Although the Fund has yet to put figures on the precise impact of Brexit, it said the post-exit negotiations would be “protracted, resulting in an extended period of heightened uncertainty that could weigh heavily on confidence and investment, all the while increasing financial market volatility”.
The IMF’s intervention will be welcomed by the Chancellor, who is heading out to Washington later this week for the Fund’s spring meetings.
In its official forecasts for economic growth, the IMF cut Britain’s projected output this year from 2.2% to 1.9%, the weakest rate since 2013 and one of the biggest cuts to any leading industrialised economy.
It also cut its growth rate for global growth from 3.4% to 3.2%, only a shade stronger than last year’s growth rate of 3.1%.
Labour’s Shadow Chancellor John McDonnell MP said the downgrading should be a wake-up call for the Chancellor.
“It should act as a signal that George Osborne needs to change course and that Tory backbenchers who wildly scream for Brexit should think again,” he said.
“As these figures clearly suggest, it’s the uncertainty facing the UK from the risk of leaving the EU coupled with a Chancellor who can’t even meet his own targets that has led to such a concerning announcement.”
The figures followed a warning from Mme Lagarde earlier this month that the recovery remains “too slow, too fragile”.
The Fund’s chief economist, Maurice Obstfeld, said: “Persistent slow growth has scarring effects that themselves reduce potential output and with it, demand and investment.”