The International Monetary Fund has downgraded its forecast for UK economic growth over fears of disruption if Britain votes to leave the European Union on June 23.
In its World Economic Outlook, the global financial body warned that Brexit could inflict “severe regional and global damage” by disrupting trade relations.
Negotiations over post-exit arrangements would probably be “protracted”, leading to an “extended” period of uncertainty and market volatility.
The IMF scaled back its projection of UK economic growth for 2016 by 0.3 percentage points to 1.9% - marginally below the 2% forecast of the Government’s Office for Budget Responsibility - but held its forecast for 2017 at 2.2%.
Chancellor George Osborne said the IMF report represented a “stark” warning of the risks of UK withdrawal from the EU in the referendum. But shadow chancellor John McDonnell said Mr Osborne’s failure to meet his own economic targets had also played a part, and it was time for him to “change course”.
Campaigners for UK withdrawal rejected the IMF analysis and accused the international body of “talking Britain down” at Mr Osborne’s request.
The IMF report said: “In the United Kingdom, the planned June referendum on European Union membership has already created uncertainty for investors. A Brexit could do severe regional and global damage by disrupting established trading relationships.”
Listing the prospect of UK withdrawal as one of the seven main “downside risks” to the world economy, the report warned: “A British exit from the European Union could pose major challenges for both the United Kingdom and the rest of Europe.
“Negotiations on post-exit arrangements would likely 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.
“A UK exit from Europe’s single market would also likely disrupt and reduce mutual trade and financial flows, curtailing key benefits from economic co-operation and integration, such as those resulting from economies of scale and efficient specialisation.”