IMF Warns Of 'Severe' Damage Of UK Leaving EU

Brexit could cause severe damage to the global economy, the International Monetary Fund has warned.

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 (Other OTC: ITGL - news) 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 warning came as the latest ICM tracker poll indicated a four-point lead for the Leave camp - 52% to 48%.

:: Miliband Warns Brexit Would Be An 'Act Of Arson'

ICM's Jennifer Bottomley said: "... thus far, these bleak warnings have yet to produce any real shift in public opinion. Most polls continue to suggest that it’s a very tight contest, with neither side able to gain a decisive lead.

"However, we have noted in previous posts that the Leave camp stands to benefit on polling day from higher turnout among its supporters, and this week’s ICM poll is a clear illustration of this."

The IMF 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.

George Osborne said the IMF warning was "stark".

"For the first time, we’re seeing the direct impact on our economy of the risks of leaving the EU," he said.

"If the British economy is hit by the mere risk of leaving the EU, can you imagine the hit to people’s income and jobs if we did actually leave?"

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%.

:: Brexit Photographer: No EU Cannot Use My Pic

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."