IMF warns against British exit from EU

A British vote to exit the European Union will likely have negative consequences for Britain in the short term and in the long term, according to the International Monetary Fund, the Bank of England and foreign investors.

"A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output," the IMF said Friday in its latest report on the British economy.

On the other hand, a vote to stay in the EU would likely boost the economy in the second half of the year.

The British will decide their future path in a referendum on June 23. But economic experts and business leaders are already weighing in.

International Monetary Fund Managing Director Christine Lagarde told journalists in London on Friday that a vote for Britain to exit ("Brexit") the EU would be bad.

"Depending on what hypotheticals you take, it's going to be pretty bad to very, very bad," Lagarde said.

Leaving the 28-nation bloc would hit trade, investment and productivity, resulting in a "negative and substantial" impact on economic output.

A GDP drop, or plunge

The country's gross domestic product (GDP) could drop a modest 1.5 percent, or it could plunge by a catastrophic 9.5 percent.

A driving force behind the Brexit movement is a desire to take its annual contribution to the EU budget and use it at home. But the IMF claims that any economic contraction beyond 1 percent would more than offset any budgetary gains from savings on EU budget contributions.

The IMF report comes one day after Bank of England Governor Mark Carney warned that a Brexit could plunge the country into recession, which is defined as two straight quarters of economic contraction.

Meanwhile, foreign investors overwhelmingly oppose the country's departure from the EU. A survey of 667 firms found that 78 percent said a Brexit vote would have a negative impact on their business. Only 5 percent thought the impact would be positive.

The poll was conducted by Ipsos MORI between April 19 and May 2, and covered businesses belonging to the bilateral Chambers of Commerce of Canada, France, Germany, Italy, Spain, Sweden and the China Council for the Promotion of International Trade.

On the question of how a vote to exit the EU would affect their future investment in the country, 62 percent said it would have a negative impact, while, again, just 5 percent said it would be positive.

More ominously, one-third of those companies polled foresee a dramatic decline - of more than 10 percent - in their investment in the UK if the country leaves the EU.

US President Obama also recently waded into the debate, saying Britain should stay in the EU.

bik/kms (AFP, Reuters)