A no-deal Brexit would inflict "substantial costs" on the UK economy, the International Monetary Fund has warned today.

In the latest of its regular assessments of the state of Britain's finances, the IMF said that all likely Brexit scenarios would "entail costs for the UK economy" but that a disorderly departure could lead to "a significantly worse outcome".

While new trade agreements made possible by EU withdrawal "could eventually pare some of these losses for the UK", any such deals are "unlikely to bring sufficient benefits to offset the costs imposed by leaving the EU", the international economic think-tank said.

In its report, launched by Christine Lagarde, the IMF Managing Director, alongside Chancellor Philip Hammond at the Treasury in London, the international body urged the UK authorities to prepare policies to "safeguard macroeconomic and financial stability" in the case of a chaotic Brexit.

The Treasury and Bank of England should be prepared for the possibility of "sharp declines in sterling and other asset prices" and the Bank should be ready to act to ensure the financial system has adequate liquidity, the report said.

Ministers might have to use the flexibility available to them to boost economic activity by bringing forward major infrastructure projects, it suggested.

But any easing of fiscal policy - for example by cutting interest rates to stimulate the economy - would have be temporary and introduced as part of a "credible" longer-term plan to keep debt under control, the IMF pointed out.

The think-tank warned that tax rises and spending cuts could be needed if Brexit inflicted lasting harm on the economy, saying: "A permanent shock to output would require an eventual adjustment of revenues or spending."

Even if an orderly Brexit were achieved, with a trade deal covering goods and some services, UK growth could be expected to remain "moderate" over the next few years, said the report.

Its forecast of around 1.5 per cent growth in GDP for 2018 and 2019 under this scenario was virtually unchanged from its predictions in July.

The IMF noted that "fundamental questions", particularly on the Northern Irish border, remained unanswered.

And it warned: "Resolving these issues is critical to avoid a no-deal Brexit on World Trade Organisation terms that would entail substantial costs for the UK economy - and to a lesser extent the EU economies - particularly if it were to occur in a disorderly fashion."

The report warned that the UK still faced a "daunting" task to prepare for Brexit and was unlikely to have completed the task by departure day on March 29 2019 even with "the most determined efforts".

It added: "This risks serious disruptions without an implementation period in place. Co-ordination and co-operation between the EU and UK on priority issues, such as ensuring air traffic continues to flow, would be to the benefit of both parties."

Mr Hammond said he IMF report underlined the importance of securing a Brexit deal.

"We are at a critical juncture for the UK economy. We must lock in the economic progress that we have made.

"As we leave the EU we must secure a close and enduring partnership with our European neighbours and we must heed the clear warnings of the IMF and others of the significant costs not reaching a deal with the EU will have for British jobs and British prosperity.

"Despite the contingency actions we are taking, leaving without a deal would put at risk the substantial progress the British people have made over the last 10 years."

He added: "As talks intensify, I am confident we will reach agreement on the withdrawal agreement and the future framework this autumn but we must, of course, continue to prepare for all scenarios. A no-deal scenario remains unlikely but it is not impossible."

Labour’s David Lammy, on behalf of pro-EU Best for Britain, said the IMF report showed beyond doubt that the Tories' plans would act as a “sledgehammer” to the UK economy and the substantial costs would weigh disproportionately on those with the least.

"It's not fair on the most vulnerable in this country. The Prime Minister might try to trumpet this report as a victory for her Chequers Plan but doing so would be to deceive the British people. She and the Brexit extremists who have held a gun to the country's head should take responsibility for this entire mess.”

The London MP added: "No-deal would be a nightmare; that's for certain. We need a People's Vote with the option to stay in the EU."