IMF's Lagarde warns EU referendum causes 'uncertainty' in economy

The International Monetary Fund (IMF) has urged David Cameron to hold the in/out referendum on European Union membership sooner rather than later due to the "uncertainty" it will cause to the economy.

IMF managing director Christine Lagarde said "certainty is always better than uncertainty" when asked about the prospect of waiting up to two years for a vote on a possible British exit.

Stressing that she personally hoped that the UK would vote to remain in the 28-member bloc, Lagarde said the next report by IMF inspectors due in May 2016 will examine the consequences of a British exit from the EU.

Asked about the prospect of a referendum being delayed until the end of 2017 deadline set by the Prime Minister, she said:

Her comments came after the Prime Minister failed to win over his Polish counterpart in his bid to reform welfare rules in the European Union.

But Cameron's spokesperson said on Friday he has not changed his position on the need to curb welfare payments to EU migrants after reportssaid he was willing to drop the plan.

The EU issue was identified in the annual health check by the IMF on the UK's economy, which also highlighted concerns about high house prices, the UK's current account deficit and the public finances.

But it was a broadly positive assessment, which stated "the UK's recent economic performance has been strong, and considerable progress has been achieved in addressing underlying vulnerabilities".

Forecasts by the IMF suggested "steady growth looks likely to continue over the next few years", averaging around 2.25% in the medium term.

At the launch of the IMF's report in the Treasury, Ms Lagarde praised the UK's response to the global financial crisis.

Chancellor George Osborne said the IMF report "frankly, could hardly be more positive".

She said there had been indications of a "slight improvement" in the UK's historically poor productivity levels but she expressed concerns about the housing market.

"House prices are still growing faster and higher than income grows," she said. "In addition, while household debt has stabilised, it has stabilised at fairly high levels. That leaves small households vulnerable to income and interest rate shocks."