IMF downgrades UK growth forecast amid Brexit fears

EU referendum

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."

Mr Osborne said: "While Britain remains one of the fastest-growing advanced economies in the world, the IMF's warnings about our exit from the EU are stark. For the first time, we're seeing the direct impact on our economy of the risks of leaving the EU."

The Chancellor added: "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?

"The IMF has given us the clearest independent warning of the taste of bad things to come if Britain leaves the EU."

Mr McDonnell said: "This is another major downgrading of growth forecasts for this already downgraded 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. 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 Vote Leave campaign said the IMF had been "consistently wrong" in past forecasts for the UK and claimed there was "no substantive proof" that the prospect of a referendum had created business uncertainty.

Vote Leave chief executive Matthew Elliott said: "The IMF has talked down the British economy in the past and now it is doing it again at the request of our own Chancellor. It was wrong then and it is wrong now.

"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 £350 million 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."