IMF warns over Brexit threat to Europe’s growth

European leaders need to work harder to restore “flagging faith” in monetary union as a UK Brexit vote threatens the recovery of the region, the International Monetary Fund has warned.

In its starkest comments yet on the impact of the crucial vote, the organisation said that the eurozone’s “subdued” economic outlook was exacerbated by a rising tide of euroscepticism in the region, “hindering a collective will to take crucial decisions for a stronger union”.

The Leave vote — which prompted calls for similar referendums by Right-wingers in France and the Netherlands — is likely to lead to “persistent uncertainty” in the UK’s relationship with its biggest trade partner against the backdrop of slowing global growth, which “raises the likelihood of stagnation,” the IMF said.

The body, headed by managing director Christine Lagarde, added: “Unless collective problems are resolved, the euro area is likely to suffer repeated bouts of economic and political instability leading to crises of confidence and economic setbacks. The EU should redouble efforts to ensure the benefits of economic integration and thus rebuild flagging faith in the monetary union.”

The IMF added that the European Central Bank should stand ready to accelerate its €80 billion (£68 billion) a month money-printing programme to ward off the threat of persistent “stubbornly low” inflation.

The comments came as ratings agency Moody’s slashed its growth forecasts for the eurozone and the UK claiming that “political contagion” across the region was the biggest Brexit risk. The eurozone economy is now expected to grow at just 1.3% next year.

But the UK’s outlook was even worse: Moody’s is pencilling in 1.2% expansion for next year, down from its earlier 2.1%. The Bank of England is tipped to cut interest rates potentially as soon as next week to help the country manage the economic shock of Brexit.