Downbeat comments from the OECD together with a cutting of its forecast for UK GDP growth in 2016 to 1.7% from 2.1% contributed to the creation of negative sentiment which saw the FTSE 100 down 0.7% at 6185 this morning.
Improved polling numbers for the campaign to leave also weighed on the mood among investors.
A vote to leave “would trigger negative economic effects on the UK, other European countries and the rest of the world,” the OECD said. It would lead to economic uncertainty and hinder trade, with effects being stronger if Brexit triggers volatility in financial markets, the organisation added.
It also forecast that by 2030 UK GDP could be over 5% lower than if the country remained in the EU.
The OECD’s gloominess was not confined to its views on the UK as it said the whole world is “stuck in low-growth trap” at the moment.
Mood among traders and investors was also being dragged down by a lacklustre manufacturing data release from Markit.
The UK PMI crept back into positive territory at 50.1 for May after posting a reading of 49.4 in April but that still represents subdued activity.
“The manufacturing sector continued its lacklustre start to 2016,”said Rob Dobson, senior economist at Markit. “Although key indicators for output, new orders and the headline PMI all ticked higher in May, the latest survey is still consistent with around a 0.8% quarterly decline in the official ONS Manufacturing Production Index. The sector will therefore remain a drag on broader economic growth, adding pressure on the service sector to sustain the upturn in GDP.”