WASHINGTON: A British exit from the EU risks causing "severe global damage" that would drag down UK growth for years to come, the International Monetary Fund has warned.
The stark message came as the IMF slashed its global growth forecasts and said the risk of the world slipping into a permanent cycle of low growth, inflation and interest rates was rising.
The Fund said a vote by the British population to leave the EU posed one of the biggest risks to the global recovery as Maurice Obstfeld, its chief economist, described Brexit as a "very real possibility".
Trade agreements would be torn up if the UK broke away from the rest of the bloc, the IMF said.
This would create an "extended period of heightened uncertainty" as "protracted" negotiations with Brussels on a new deal "weigh heavily" on confidence and investment.
"The planned June referendum on European Union membership has already created uncertainty for investors; a 'Brexit' could do severe regional and global damage by disrupting established trading relationships," Mr Obstfeld said in the IMF's World Economic Outlook.
While Mr Obstfeld did not rule out a positive outcome for the UK, he said uncertainty during the two-year renegotiation period made it "hard to believe" that the short-term impact of a Brexit would be positive.
The UK economy is now expected to grow by 1.9pc this year. This represents the weakest annual growth since 2012 and is down from a forecast of 2.2pc just three months ago.
Growth in 2017 is projected to rise to 2.2pc, unchanged from the Fund's previous estimate. Lower energy prices and Britain's "buoyant property market" would help to offset the Chancellor's renewed austerity drive, it said.
George Osborne described the IMF's warning as a "taste of bad things to come if Britain leaves the EU".
"While Britain remains one of the fastest growing advanced economies in the world, the IMF's warnings about our exit from the EU are stark. For the first time, we're seeing the direct impact on our economy of the risks of leaving the EU," the Chancellor said.
The IMF described the global recovery as "fragile" as it warned that risks of recession and "secular stagnation" were rising across the world.
The global economy is expected to expand by 3.2pc in 2016 and 3.5pc in 2017, down from respective forecasts of 3.4pc and 3.6pc in January.