The International Monetary Fund (IMF) has warned Britain would face sizeable losses in income and a protracted period of heightened uncertainty if it chose to leave the European Union next month.
In its yearly report on the UK economy, the IMF indicated the reaction of global markets to the UK leaving the 28-country bloc on 23 June would in all likelihood be negative and could be severe. Meanwhile, Brexit could also lead to increased hurdles to economic activity, which would in turn have a severe impact on Britains trade, investment and productivity.
According to IMFs estimate, Britains gross domestic product would shrink between 1.5% and 9.5%, with losses exceeding 1%, offsetting any gain derived from scrapping the UKs contribution to the EU budget.
A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output, the IMF warned in a statement.
It said: Markets may anticipate such adverse economic effects. This could entail sharp drops in equity and house prices, increased borrowing costs for households and businesses, and even a sudden stop of investment inflows into key sectors such as commercial real estate and finance.
The lead up to the 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, the body added.
The warning comes a day after the Bank of England cautioned there were increasing signs that uncertainty associated with the European Union referendum has begun to weigh on activity and could lead to a sharp fall in the value of the pound and to higher unemployment.
Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise, the Monetary Policy Committee said in the minutes to its May meeting.
Sterling is also likely to depreciate further [in a Brexit scenario], perhaps sharply.
In April, Chancellor George Osborne was lambasted by supporters of the Leave campaign for allegedly latching on an IMF report that warned of the impact of leaving the EU. However, speaking on Friday (13 May), IMFs managing director, Christine Lagarde, stressed the organisation intended to steer clear of any political agenda.
We are not doing it out of politics, this is not the job of the IMF, she explained.
We are doing it because it has a significant downside risk, number one, and secondly, it is not just a domestic issue. I know it is a big domestic issue for many of you, but it is an international issue [...] So it is out of a duty and being loyal to our mission that we have to actually study that in depth.
However, Lagarde added that while the IMF did not want to be involved politically in the lead-up to the vote, it retained a duty of care to present facts that could influence voters.
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, she said.
But it is also our duty to this country and to the international community to actually lay out the facts, the numbers [...] the various hypotheticals, so people are actually properly informed about the consequences of their choice.
Several economic analysts have warned the longer uncertainty surrounding the referendum is allowed to linger, the worse the economic impact could be, the IMFs managing director added: The majority of economic analyses conducted agree that a vote to depart the EU would be costly in the long run, even after this uncertainty has been resolved.
