Christine Lagarde (2)

The International Monetary Fund (IMF) has warned of the "negative and substantial effect" a Brexit could have on growth in the UK economy.

Among its warnings, the IMF said a vote to leave the European Union would lead to a "protracted period of heightened uncertainty" and volatility in financial markets leading to London losing its status as a global financial leader.

Head of the IMF, Christine Lagarde also agreed with the comments made by governor of the Bank of England, Mark Carney, that a vote to leave the EU could lead to a recession.

In its forecast report, the IMF said: "Following a decision to exit, the UK would need to negotiate the terms of its withdrawal and a new relationship with the EU—unless it abandoned single market access and relied on WTO rules, which would significantly raise trade barriers. It seems likely that ratification of a new deal would require unanimous consent of all EU member governments, making agreements subject to considerable political risks. As EU-level agreements also cover the UK’s trading relationship with 60 non-EU economies (and prospective arrangements with another 67 countries are in the works), the UK would also need to simultaneously renegotiate these arrangements, or else see them revert to WTO rules. These processes and their eventual outcomes could well remain unresolved for years, weighing heavily on investment and economic sentiment during the interim and depressing output. In addition, volatility in key financial markets would likely rise as markets adjust to new circumstances."

The IMF also warned that the UK government may have to implement further "budget consolidation" in the case of a Brexit, meaning either higher taxes or spending cuts.

It now expects economic growth for 2016 to be 2%, before returning to an average 2.25% over the medium term, explaining that it was a "broadly positive" forecast with significant risks.