Fears over ‘Brexit’ will slash UK economic growth this year, a new report from the International Monetary Fund has warned.
In the first official verdict on the impact of the June 23 EU referendum, the global watchdog cut its forecast for the British economy from its previous 2.2% estimate to 1.9%.
Chancellor George Osborne was swift to seize on the study as proof that the UK needs to stay in the European Union to maintain its trade and standard of living.
Labour also said that it showed the dangers of ‘Brexit’, but sa that it underlined the wider failure of the Tory government to make the economy more robust.
However, ‘Leave’ campaigners dismissed the report, claiming the IMF was ‘talking down’ the British economy at the request of the Chancellor – and had got its previous forecasts wildly wrong.
In its ‘World Economic Outlook’ published today, the IMF predicts that there will be slight acceleration in global growth in 2016 from 3.1% to 3.2%, followed by 3.5% growth in 2017, but warns of financial ‘turbulence’ hitting all economies.
It singled out the UK, saying lower energy prices and a booming property market were counterbalanced by ‘headwinds’ of ‘fiscal consolidation and ‘heightened uncertainty ahead of the June referendum on European Union membership’.
David Cameron was swift to tweet his own reaction.
The IMF added: “A British exit from the European Union could pose major challenges for both the United Kingdom and the rest of Europe. Negotiations on postexit 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 U.K. exit from Europe’s single market would also likely disrupt and reduce mutual trade and financial flows, curtailing key benefits from economic cooperation and integration, such as those resulting from economies of scale and efficient specialization.”
In the introduction to its report the IMF says that the Syrian refugee crisis “coupled with other, economic, pressures” have led to “a rising tide of inward-looking nationalism” across Europe.
“One manifestation is the real possibility that the United Kingdom exits the EU, damaging a wide range of trade and investment relationships.”
Mr Osborne said that 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,” he said.
“If Britain leaves the EU, the IMF says there would be a short-term impact on stability and long-term costs to the economy. 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.”
Shadow Chancellor John McDonnell said the IMF figures – which follow similar downgrades by the UK’s own Office for Budget Responsibility – proved that there had been 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.
"It seems the Tories are part of the problem not the solution to the challenges facing our economy. If it wasn't for a Budget built on failure last month, the IMF might not be throwing a Tory cloud of uncertainty over our economy today.”
David Miliband, former Foreign Secretary, also pounced on the report as he spoke on behalf of the Britain Stronger in Europe campaign.
“The IMF have delivered a stark warning that should ring loud in the ears of families and businesses up and down the country. There is a storm on the horizon, we can hear the thunder, but it’s within our power to protect ourselves from it," he said.
“This is the clearest evidence yet about the danger of Britain leaving Europe from the word’s most respected financial body.
But others pointed out that when the OBR downgraded UK growth, it blamed it not on Brexit fears but on a drop in British productivity.
Vote Leave Chief Executive Matthew Elliott was scathing about the IMF verdict.
“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.’
The Vote Leave camp added that there was no substantive evidence for the IMF's claim that the economy had 'already created uncertainty for investors'.
"The IMF appears to be saying that David Cameron and George Osborne were wrong to hold a referendum," it said.