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London - The International Monetary Fund (IMF) cut its UK growth forecast and warned of "severe" damage to the world economy if Britain leaves the European Union.
In a quarterly update to its World Economic Outlook, the Washington-based lender cited a potential UK exit as one of the key international risks.
It said a vote to quit the bloc would pose "major challenges" and could do "severe regional and global damage by disrupting established trading relationships."
With polls suggesting the June 23 referendum remains too close to call, uncertainly over the outcome has driven down the pound and prompted Bank of England Governor Mark Carney to warn that a Brexit is the biggest domestic threat to UK financial stability.
It has also divided Prime Minister David Cameron’s ruling Conservative Party.
"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 fund said. Leaving would "likely disrupt and reduce mutual trade and financial flows."
Forecast downgrade
The IMF also lowered its 2016 UK economic forecast to 1.9% from 2.2%. It kept its 2017 forecast at 2.2%.
Vote Leave, a campaign group pushing for Brexit, said in a statement that the IMF had been wrong with its forecasting in the past and that "the real risk to the UK economy is staying attached to the failing eurozone."
Prime Minister David Cameron said in a post on Twitter that "the IMF is right - leaving the EU would pose major risks for the UK economy" and Britain is "stronger, safer and better off in the European Union."
Chancellor of the Exchequer George Osborne echoed that sentiment, saying the "stark" IMF comments provided the "clearest independent warning of the taste of bad things to come" if Britain quits the bloc.
