INTEREST rates could rise “sharply” if Britain left the European Union with the economic consequences of Brexit ranging from pretty bad to very, very bad, Christine Lagarde, the head of the International Monetary Fund, has warned.

The global finance body’s intervention, coming less than 24 hours after Mark Carney, the Governor of the Bank of England, warned that Brexit could plunge the UK back into recession, prompted an angry response from the Vote Leave campaign, which accused the IMF of trying to “bully the British people”.

The anti-EU group also accused the UK Government of planning to “circumvent purdah rules” – purdah being the monthlong period during the referendum campaign when Whitehall is not allowed to issue EU-related policy statements – by using the “EU-funded IMF” to release a report warning about Brexit just a week before the June 23 polling day.

But David Cameron, responding to the IMF analysis, said: "Christine Lagarde is the latest top economist to warn leaving the EU could result in a recession; that would hit jobs and wages."

At a briefing in the Treasury to unveil its regular report on the UK’s economic outlook, Ms Lagarde claimed that Brexit posed a "significant downside risk" and could see interest rates "rise sharply". She said the prospect of Brexit was causing "anxiety around the world".

Withdrawal from the 28-member bloc would result in a "protracted period of heightened uncertainty" for the UK with a likely hit to output and "sizeable" long-term losses in income, the IMF assessment said.

It added that global market reaction to a Leave vote was likely to be "negative and could be severe".

Ms Lagarde echoed Mr Carney’s warning that Brexit "could potentially lead to a technical recession" ie two or more quarters of negative growth.

"It is a combination of the current situation with the weaknesses of the current account deficit - north of five per cent - and the potential immediate outcome of a No vote and the level of uncertainty that would certainly lead to serious disruptions.

"The combination of all that could potentially - and that is one of the many probabilities - lead to a technical recession."

The IMF managing director insisted there was no positive scenario for UK economic performance after Brexit when other trade models were analysed such as Norway and Switzerland or reverting to World Trade Organisation rules.

"Depending on what hypotheticals you take, it's going to be pretty bad to very, very bad," she explained.

The IMF chief told reporters that the organisation had looked very carefully at a whole range of existing opinions, calculations and forecasts together with its own analysis and that in the very vast majority of cases had not seen anything that was positive in the event of Brexit.

George Osborne seized on the IMF’s view, saying it had made clear that a vote to leave the EU would cost Britain money and leave people poorer.

"The IMF also put to rest the fallacy that has been peddled by those who say Britain will have more money for public services if we are not paying into the EU budget," the Chancellor said.

"The IMF are very clear today; the hit to growth we could expect from a vote to leave would cost our public finances more than the amount we would gain from no longer contributing to the EU budget. Put simply, the IMF says: a vote to leave costs us money."

But Priti Patel, the Business minister who supports Britain leaving the EU, accused the IMF of “talking down Britain”.

She said: ‘The IMF warned Britain it was playing with fire when it set out a plan to deal with the deficit. Now our economy is stronger than nearly every other major economy. Today, the IMF is talking down Britain because we want to take back control from Brussels. They were wrong then and they are wrong now.”

She also referred to the prospect of the IMF report just a few days ahead of June 23, saying: “The EU-funded IMF should not interfere in our democratic debate a week before polling day. It appears the Chancellor is cashing in favours to Ms Lagarde in order to encourage the IMF to bully the British people; it is a sign of the desperation in the In campaign.”

The IMF report said experts expected that increased barriers to economic activity resulting from a vote to leave would hit trade, investment and productivity, reducing GDP by between 1.5 per cent and 9.5 per cent; any loss greater than one per cent would more than offset the gain from the elimination of the UK's EU budget contributions.

The global finance body warned that the prospect of the referendum "already appears to be having an impact on investment and hiring decisions, with recent surveys of economic activity falling to their weakest levels in three years".

It added: "A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output."

The IMF also claimed that the negotiation of a new trade deal with Europe could "remain unresolved for years, weighing heavily on investment and economic sentiment" and volatility in financial markets "would likely rise as markets adjust to new circumstances".

It warned that London's status as a global financial centre could also be "eroded" as UK-based firms could lose their "passporting" rights to provide financial services to the rest of the EU and much euro-denominated business might over time move to the Continent.

The report claimed financial markets might not wait to see how the impact of Brexit played out over time but could immediately "price in" the possibility of negative consequences, provoking "an abrupt reaction to an exit vote that effectively brings these costs forward".

It further warned: "This could entail sharp drops in equity and house prices, increased borrowing costs for households and businesses, and even a sudden stop of investment inflows into key sectors such as commercial real estate and finance.

"The UK's record-high current account deficit and attendant reliance on external financing exacerbates these risks. Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle.

"Any limited support for net exports caused by an abrupt sterling depreciation would only partly offset the hit to GDP from reduced consumption and investment, and inflation could also rise well above target for some time."

The IMF suggested Brexit could produce contagion effects in regional and global markets but stressed that the main impact would be felt domestically in the UK.

While there was "wide uncertainty" over how the markets would react to a Leave vote, it was expected to be "negative and could be severe".

Ms Lagarde denied the IMF was making a political intervention in the referendum debate, insisting she regarded it "as our mission to stay away from a particular line of politics".

Asked if the Treasury had had any input into the IMF's conclusions, she responded: "Heck no! If you are suggesting that, you don't know the IMF."

Prime Minister David Cameron said: "The IMF's Christine Lagarde is the latest top economist to warn leaving the EU could result in a recession - that would hit jobs and wages."