A British vote to leave the EU risks causing severe economic and political damage to Europe and will spill over into to weaken an already febrile world economy, according to the International Monetary Fund.

The IMF listed a potential Brexit vote in June’s EU referendum as a key risk in its latest World Economic Outlook (WEO) triggering an immediate political reaction in the UK with Brexit campaigners accused the international institution of talking Britain down.

Maurice Obstfeld, the IMF’s chief economist, said a decision to quit the EU was a “very real” possibility and would affect economic growth even if an exit was managed smoothly. The body also cut its forecasts for global growth - and for the UK and other advanced economies.

“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,” he said.

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David Cameron tweeted in support of the IMF’s verdict: “The IMF is right - leaving the EU would pose major risks for the UK economy. We are strong, safer and better off in the European Union.”



George Osborne said it was as the “clearest independent warning of the taste of bad things to come”. The chancellor added: “Today we have a stark warning from the IMF. For the first time they’re saying that the threat of Britain leaving EU is having an impact on our economy and they cut our growth forecast as a result.

“They say were we actually to leave the EU there would be a short-term impact on stability and a long-term cost to the economy.”

He argued that if the British economy is “hit by the mere risk of leaving the EU” then the impact on people’s incomes and jobs would be much worse if Brexit actually happened.

The IMF said that after growing 2.2% in 2015, the UK economy is now expected to expand by only 1.9% in 2016, down from a forecast of 2.2% made by the Fund in January. That compares with 2.0% growth predicted for 2016 by the government’s independent forecasters, the Office for Budget Responsibility.

A leading campaign group for Brexit accused Osborne of asking the IMF to step in and hurt the British economy. Vote Leave said there was no substantive evidence that the referendum had created uncertainty, pointing out that David Cameron had himself insisted the vote itself would not unsettle the economy.

They also argued that IMF forecasts showed UK growth to be robust, and better than the rest of the Eurozone this year.

“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 £350m we hand to Brussels every week,” said Vote Leave chief executive Matthew Elliott.

“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.”





The Washington-based Fund said economic growth was also threatened by a host of other factors, including “the tragedy of large-scale refugee inflows” to Europe, a potential reappearance of financial market turmoil, China’s difficult economic rebalancing and growing income inequality.



It had already warned about the economic impact of uncertainty around June’s referendum but this WEO goes further: “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.”

The CBI, the business lobby group, said that without full access to the EU’s single market the UK would struggle to maintain and build on the £377bn worth of investment from the Netherlands, Germany, France and Spain.

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Speaking ahead of a meeting of European business leaders and the prime minister at Downing street, Carolyn Fairbairn, CBI director-general, said: “There are many reasons why foreign firms choose to put their money into the UK - our time zone, talent and language - but there’s no doubt, being in the EU with full access to the single market is a large part of the UK’s appeal.”

With polls remaining tight in the high-stakes EU referendum, Cameron appears to be increasing the intensity of his campaigning, with a 16 page government leaflet costing £9.3m arriving on doorsteps this week.

On the other side, Vote Leave, highlighted the fact that IMF managing director, Christine Lagarde, is facing criminal allegations over a payment to a French businessman.



UKIP leader Nigel Farage, who is a spokesman for another group Grassroots Out, sought to undermine the warning by claiming it was an example of the establishment protecting its own interest. “The IMF has been hijacked by the architects of the failing EU project, so of course they want the UK to remain,” he said.

Sources in government said that these attacks were a sign that Brexit campaigners were worried about the impact of the international warning.

IMF growth projections IMF growth projections.

The IMF used its half-yearly update on the health of the world economy to warn that the global recovery was too slow and increasingly fragile. The Fund was again forced to concede its earlier forecasts had been too optimistic.



The IMF now predicts global GDP growth will edge up only slightly this year, to 3.2%, from growth of 3.1% in 2015. That compared with a 2016 forecast of 3.4% in a January update and of 3.6% in the last WEO in October. The 2017 forecast was cut to 3.5% from, 3.6% in January.

“Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long,” Obstfeld told a press briefing to unveil the latest forecasts.



Since October’s outlook, investors have been spooked by another bout of turmoil on financial markets and the IMF raised the prospect of such wild swings in stock prices and other assets returning, with potential knock-on effects for the broader economy.

The co-founder of another major Brexit campaign group, Grassroots Out, attacked the “scaremongering of establishment organisations”. The Conservative MP Peter Bone said the IMF had got a number of forecasts wrong in the past. “The IMF supported the failed euro – and now supports the UK remaining in the EU at the request of the British government,” Bone said.

“The real risk to the UK economy is remaining in a failing EU club that will tax our financial services, depress wages via mass migration and continue to impose burdensome red tape on our small and medium-sized businesses.”

Buoyed by consumer spending, Britain was expected to be the second fastest growing economy in the G7 industrial nations this year behind the US. The IMF predicts US GDP will expand 2.4% this year and 2.5% next year, lower than January’s forecasts by 0.2 percentage points and 0.1 percentage point, respectively.

None of the other G7 countries – Germany, France, Italy, Japan and Canada – is predicted to post growth as high as 2% in either 2016 or 2017. Japan’s economy, which has struggled with labour shortages and deflation, is forecast to contract in 2017, by 0.1%.



“Growth in advanced economies is projected to remain modest, in line with 2015 outcomes. Unfavourable demographic trends, low productivity growth, and legacies from the global financial crisis continue to hamper a more robust pickup in activity,” a summary of the IMF report said.



China was the only big economy for which the IMF raised its growth forecast for this year. Chinese GDP is now seen rising 6.5% in 2016, up from a previous forecast of 6.3% as strong consumer demand and growth in the services sector offset weakness in manufacturing.



But the Chinese economy, the world’s second biggest, remains on a slowing path. GDP growth exceeded 10% in 2010, was 6.9% in 2015 and is forecast at 6.2% in 2017.



The IMF used the report to repeat calls on governments not to rely on low interest rates alone to drive the recovery and instead to do their share of the heavy lifting by pursuing more growth friendly policies. It further called on world leaders to come up with joint contingency plans for a downturn.

The Fund also raised the prospect of secular stagnation, or a permanent downward shift in the potential growth rates of advanced economies.

“Persistent slow growth has scarring effects that themselves reduce potential output and with it, consumption and investment. Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation,” it said.