IMF Warns Brexit Could Force Interest Rates Up

The consequences for Britain of quitting the EU range from "pretty bad to very, very bad", the head of the IMF has warned.

Christine Largarde, managing director of the global finance body, said a sharp rise in interest rates were among the negative impacts that could result from the UK leaving the 28-member bloc in the referendum on 23 June.

She (Munich: SOQ.MU - news) added that Brexit carried a "significant downside risk" and that the prospect was causing "anxiety around the world".

Ms Lagarde also echoed warnings by the Bank of England governor Mark Carney that a vote to Leave "could potentially lead to a technical recession".

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However, the Leave campaign has dismissed her comments and accused the IMF of "talking down Britain".

She was speaking as the IMF published a report which said a departure from the EU would lead to a "protracted period of heightened uncertainty" for the UK with a hit to output and "sizeable" long-term losses in income.

Other findings in the IMF report include:

:: Reaction of world markets expected to be "negative and could be severe".

:: Threat of sharp drop in house prices, increased borrowing costs for households and businesses, and a sudden halt to inward investment.

:: Experts forecast increased barriers to economic activity would hit trade, investment and productivity with GDP reduced by between 1.5% and 9.5% - with any loss greater than 1% cancelling out any gain from halting the UK's EU budget contributions.

:: The upcoming referendum "already appears to be having an impact on investment and hiring decisions, with recent surveys of economic activity falling to their weakest levels in three years".

:: Negotiation of a new trade relationship with Europe could "remain unresolved for years, weighing heavily on investment and economic sentiment".

Ms Lagarde said depending on what post-Brexit agreement the UK was able to hammer out, "it's going to be pretty bad to very, very bad".

She insisted it was not a political intervention in the referendum debate.

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She said: "We are doing it because it has a significant downside risk, number one, and secondly it is not just a domestic issue.

"I do not think in the last six months I have visited a country anywhere in the world where I have not been asked 'what will be the economic consequences of Brexit?'

"So it is out of a duty and being loyal to our mission that we have to actually study that in depth."

She added: "Having said that, as I said, we are not into politics and it is up to the British voters and to the British people to decide exactly what they want to do.

"But it is also our duty to this country and to the international community to actually lay out the facts, the numbers, our modelisations of the various hypotheticals so that people are actually properly informed about the consequences of their choice."

But for the Out campaign, Treasury Secretary Priti Patel has said: "The IMF warned Britain it was playing with fire when it set out a plan to deal with the deficit.

"Now (NYSE: DNOW - news) our economy is stronger than nearly every other major economy.

"Today, the IMF is talking down Britain because we want to take back control from Brussels.

"They were wrong then and they are wrong now.

"It (Other OTC: ITGL - news) appears the Chancellor is cashing in favours to Ms Lagarde in order to encourage the IMF to bully the British people - it is a sign of the desperation in the In campaign."

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