LONDON – The International Monetary Fund warned Tuesday that a British exit from the European Union could inflict severe damage to the world economy by disrupting international trade.
Listing the June 23 referendum on membership as one-of-seven downside risks for the world economy, the global financial body said the national vote on whether to stay or go has already created uncertainty for investors.
“A British exit from the European Union could pose major challenges for both the United Kingdom and the rest of Europe,” the IMF said. “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 IMF also said that an exit would curtail “key benefits from economic co-operation and integration.”
The warning echoes the British government’s position that leaving the EU would hit the economy hard. Treasury chief George Osborne described the comments as “stark.”
“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?” he said in a statement.
Campaigners arguing that Britain should leave the EU accused the IMF of being “consistently wrong” in its past forecasts for the U.K. They also suggested that the IMF was persuaded to sound an alarmist warning at the behest of Osborne.
“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 (Osborne),” Vote Leave chief executive Matthew Elliott said. “It was wrong then and it is wrong now.”
Others, such as David Miliband, a former foreign secretary under Tony Blair who quit front-line politics to head the International Rescue Committee, said the IMF’s intervention was right and proper.
“There is a storm on our horizon,” he said during a speech in London. “We can hear the thunder if we are willing to listen.”
The stark warning came as the IMF downgraded its UK growth projections for 2016 by 0.3 percentage points to 1.9 per cent. That’s slightly lower than the 2 per cent prediction made recently by the Office for Budget Responsibility, the body that independently makes economic forecasts for the government.
Separately, the Office for National Statistics said Britain’s inflation rate rose unexpectedly in March to its highest level in 15 months. The rise in the annual rate to 0.5 per cent from 0.3 per cent was largely driven by higher air fares over the Easter period. Despite the rise, inflation is way below the Bank of England’s target of 2 per cent. As a result, few economists predict an increase in interest rates this year.