The International Monetary Fund warned that a U.K. exit from the European Union — nicknamed Brexit — “could do severe regional and global damage by disrupting established trading relationships,” and said it has already created uncertainty for investors.
In its latest World Economic Outlook, published Tuesday and titled “Too Slow for Too Long,” the IMF highlighted Brexit as a downside risk. Outlining heightened downside risks over the near term, the IMF said the materialization of any of these risks — including Brexit — “could raise the likelihood of other adverse developments.”
The IMF said Brexit could pose major challenges for the U.K. and for the rest of Europe. In the event of a majority “yes” vote in the June 23 U.K. referendum to decide on a Brexit, any impact from the vote “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 outlook said.
Brexit would also likely disrupt financial and trade flows between the U.K. and Europe, and would curtail the key benefits that come with economic cooperation and integration in a single market. The IMF said these benefits include those resulting from economies of scale and “efficient specialization.”
In its outlook, the IMF also highlighted the impact of Brexit uncertainty prior to the referendum. It said the British pound had depreciated 7% between August 2015 and February 2016, “driven by expectations of a later normalization of monetary policy in the U.K. and concerns about a potential exit from the European Union.” In contrast, the currencies of other advanced economies, including the Japanese yen, the U.S. dollar and the euro, appreciated over that time.