The International Monetary Fund (IMF) has warned today that the most recent forecast suggests a UK exit from the EU could cause “severe regional and global damage”.
There continues to be concerns that there would be considerable disruption to established relationships and cause difficulties for both the UK and Europe. The IMF continues by explaining that the referendum has created uncertainty for investors and a vote to exit would only exacerbate this.
The IMF has also cut the figure for forecasted UK growth to 1.9% this year, which is a noticeable drop from the 2.2% estimate provided in January. It has not, however, changed its forecast for next year. If the referendum result sees the UK leave the EU, the IMF expects that the negotiations for the post-exit arrangements to be prolonged and this would weigh heavily on confidence and investment.
It also believes a UK exit from the EU would “disrupt and reduce mutual trade and financial flows” and restrict benefits from economic co-operation and integration, such as those resulting from economies of scale. However, the Fund said that domestic demand, boosted by lower energy prices and a buoyant property market, would help to offset the impact on UK growth ahead of the EU referendum.
The biggest risk to the UK economy and security is staying in the EU without reforms; the EU is currently unable to deal with the challenges it faces at present, which will only risk more uncertainty. Such events will, inevitably, impact on the volatility of the market and undermine trade and growth.
It is not all bad news however, there are a number of other major bodies monitoring the referendum and assessing its consequences; their analysis has been less severe than that of the IMF. Credit ratings agency Moody’s has explained they believe the impact would be small and unlikely to impact employment. The CBI has warned a British exit from the EU – known as a “Brexit” – could cost the UK economy £100bn and nearly one million jobs.