IMF: Messy Brexit Could Slug UK Economy

A vote to exit the European Union in next week's referendum could leave Britain's economy more than 5 percent smaller by 2019 than if it stays in the 28-nation club, the International Monetary Fund said.

The IMF, which has previously warned that Britain and the world economy could be hit by a so-called Brexit, on Saturday provided a detailed analysis of how a "Leave" vote would affect the world's fifth-biggest economy.

If Britain manages to forge a Norway-style relationship with the EU, its economic output will probably be around 1.5 percent smaller by 2019 than if it stays a full member, according to theIMF's "limited" Brexit impact scenario.

Norway is not a member of the EU but it has access to its single market in return for contributing money to the bloc and accepting its freedom of movement principle and some of its other rules and regulations.

Under the Fund's "adverse" scenario - long and unsuccessful negotiations between London and Brussels followed by Britain having to trade with the EU under World Trade Organization rules - the economy would be 5.5 percent smaller by 2019.

"In the short run, the uncertainty generated by navigating a complicated and untested exit process could be damaging for investment, consumption, and employment (in Britain)," the IMFsaid in its report.

The Washington-based fund is one of a number of global institutions and governments to warn of the risks of a Brexit. Britain's economy slowed ahead of the vote and the Bank of England has warned an exit could tip it into recession.

Opinion polls this week suggested the "Leave" camp was ahead of the "Remain" side ahead of the June 23 vote. Campaigning was suspended after the murder of British lawmaker Jo Cox on Thursday.

Britain's official Vote Leave campaign criticized the IMF's latest warnings.

"The IMF’s analysis is partial," it said in a statement, adding that its forecasts have been wrong in the past. "The IMF underplays the value of new free trade agreements to the British economy."

Supporters of Brexit argue Britain could strike better overseas trade deals on its own.

The IMF's forecasts were in a similar range to those from the Organization for Economic Cooperation and Development and Britain's National Institute of Social and Economic Research, a leading think tank.

In its report, the IMF said an expected fall in sterling after an "Out" vote might help exports but not by enough to offset the hit to demand and output.

It also took on another of the "Out" campaigns arguments by saying there would be little room for cutting red tape after an exit from the EU because Britain was already lightly regulated.

A Brexit could shave between 0.2 percent to 0.5 percent from the rest of the EU's economic output in 2018, the IMF said. Ireland, the Netherlands and Belgium could be hit hardest because of their trade and financial linkages with Britain.

(Editing by Ana Nicolaci da Costa)