IMF chief Lagarde warns of dangers of Brexit to UK

The managing director of the International Monetary Fund (IMF) Christine Lagarde on Friday warned that if the UK left the European Union as a result of the June 23 referendum, Britain could suffer a stock market crash and a fall in house prices.

"We have looked at all the scenarios. We have done our homework and we haven't found anything positive to say about a Brexit vote," Lagarde told a press conference at the UK Treasury in London held to launch the IMF's annual assessment of the British economy.

The assessment, made on all IMF member nations each year, warned that a vote to leave the EU in the referendum would increase volatility in financial markets and damage UK output.

The report noted: "A vote to leave the EU would create uncertainty about the nature of the UK's long-term economic relationship with the EU and the rest of the world. A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output."

These effects would be felt in the short term, but the report also predicted long-term problems, including the downgrading of London as a global financial center, and the transfer of London's dominant foreign exchange market structures to within the eurozone.

The IMF said in the report: "London's status as a global financial center could also be eroded, as UK-based firms may lose their 'passporting' rights to provide financial services to the rest of the EU and much euro-denominated business may over time move to the continent."

The report noted that in the event of a referendum vote to remain in the EU, UK GDP growth would rebound in the second half of the year, with a referendum-related drag in the first of the year resulting in growth of 2 percent this year. However, 2017 was predicted to enjoy stronger growth, at 2.25 percent.

The IMF forecast that inflation, currently at 0.5 percent, will rise towards its target figure of 2 percent as the influence of commodities prices fall out of the figures and the effect of low unemployment pushes up wage settlements.

Turning to UK regulatory structure, the IMF noted that a wave of regulatory reforms since the financial crisis meant that "the main parts of the UK financial system appear resilient."

Banks had more than doubled their risk-weighted capital ratios from pre-crisis levels, strengthened liquidity and had reduced leverage.

Stress tests showed that the major elements of the financial system -- large banks, insurers, asset managers, and central counterparties -- appear resilient in the face of shocks, said the IMF. Endit