IMF issue strongest warning on Brexit

Britain could deal a damaging blow to the fragile global economy if it votes to leave the European Union in June, the IMF said in the sharpest warning yet from a global body about the risks associated with Brexit.

In a half-yearly assessment of the world economy, the International Monetary Fund listed the June 23 referendum as a key risk alongside instability in China and other emerging markets, volatile share prices, and a loss of long-term growth potential in advanced economies.

“The planned June referendum... has already created uncertainty for investors,” said the IMF’s chief economist Maurice Obstfeld.

“A Brexit could do severe regional and global damage by disrupting established trading relationships.”

The IMF also cut its 2016 growth forecast for Britain to 1.9% from 2.2%, the sharpest downgrade for any major advanced economy other than Japan.

Britain’s economy expanded by 2.3% in 2015 and government forecasters have said growth will slow this year and in subsequent ones.

In February, the world’s top 20 economies listed Brexit as a global risk after lobbying from British finance minister George Osborne.

Osborne, who has a warm relationship with IMF managing director Christine Lagarde, said the Fund’s comments reinforced the case for staying.

Supporters of Britain’s exit from the EU said the IMF was being unduly negative and that the biggest risk was remaining in the EU.

“The IMF has talked down the British economy in the past and now it is doing it again at the request of our own [finance minister],” said Matthew Elliott, chief executive of campaigning group Vote Leave.

“The irony is that if we vote ‘Remain’, our voice at the IMF will be silenced as the EU wants to take our seat at the top table in return for the £350m we hand to Brussels every week.

“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.”

The IMF said Britain’s trade with the EU was likely to suffer if it left, especially during the two years after the referendum when it would negotiate exit terms, “resulting in an extended period of heightened uncertainty”.

On Monday, the City of London said leaving would be a shock to Britain’s financial industry, threatening foreign investment and crimping growth.

British prime minister David Cameron, who supports EU membership, promised to hold the referendum to satisfy the many members of his Conservative Party who want Britain to leave.

Most opinion polls suggest supporters of EU membership have a narrow lead.