Commenting on the obstacles within the negotiations, the IMF said fundamental questions surrounding the U.K. and EU's future relationship needed to be answered.
"Resolving these issues is critical to avoid a 'no deal' Brexit on World Trade Organization (WTO) terms that would entail substantial costs for the U.K. economy — and to a lesser extent the EU economies — particularly if it were to occur in a disorderly fashion," the report said.
Brexit supporters argue that leaving the EU will allow the U.K. to strike out on its own and forge trading relationships with other economies around the world. Those that want to remain say the U.K. could be plunged into an economic wilderness with trade deals taking years to negotiate.
The IMF said that while new trade agreements could eventually pare some of the U.K.'s economic losses caused by Brexit, "such agreements are unlikely to bring sufficient benefits to offset the costs imposed by leaving the EU."
The U.K. is due to leave the EU on March 29, 2019. The British government and EU have reached a conditional agreement for a 21-month transition period, however, in an attempt to avoid a "cliff-edge" scenario where the U.K. abruptly leaves the bloc and enters a period of legal and economic uncertainty.
The IMF characterized the range of remaining issues to prepare for Brexit as "daunting" and underscored the importance of securing an implementation period. "The U.K. will have to bolster human, physical, and IT resources in customs and other services, and establish domestic agencies to replace EU ones," the Fund warned, as well as renegotiating "the hundreds of bilateral and multilateral international agreements to which it is now party via its EU membership."
It said the "massive scope of work" that remains and the limited time before the U.K. exits the EU "would likely leave preparations incomplete on departure day despite even the most determined efforts."