Britain's decision to leave the European Union could reduce the bloc's economic growth by 0.2 to 0.5 per cent next year, EU Economy Commissioner Pierre Moscovici said Monday, while the impact on London would be more significant.

He shared the European Commission's assessment with eurozone finance ministers at their first talks following last month's referendum outcome, while noting that the outlook "can be changed if we are capable of limiting uncertainty and delivering the proper policy response."

Britain is not a member of the 19-member currency bloc but, as one of the EU's three largest economies, it is an important trading partner. The June 23 vote to leave the EU has led to market volatility and a sharp fall in the pound, amid uncertainty over the steps ahead.

The decision to leave the EU could reduce British economic growth by 1 to 2.5 per cent next year, Moscovici noted.

The Eurogroup of eurozone finance ministers agreed in a joint statement that markets were now showing signs of stabilizing, while noting that the prevailing uncertainty could weigh on medium-term growth prospects.

Their talks took place as British Prime Minister David Cameron announced that Home Secretary Theresa May would become his successor on Wednesday. Earlier Monday, her only remaining rival for the post had dropped out of the race.

Moscovici called on the new British government to formally notify its intention to leave the EU as soon as possible, noting that "the longer the uncertainty lasts, the costlier it will be for the economy."

Once Britain triggers the EU's so-called Article 50, formalizing its intention to leave, a process of at least two years is set in motion to settle the terms of the divorce.

The Eurogroup of eurozone ministers also discussed how to proceed against Spain and Portugal for breaching EU budget rules, before the issue goes before all 28 EU finance ministers on Tuesday.

They agreed with an assessment by the commission that Madrid and Lisbon had failed to take effective action to whittle down their deficits. If the verdict is shared by their EU counterparts, this will bring the countries a step closer to being penalized.

Members of the eurozone should limit their deficits to 3 per cent of gross domestic product. Portugal was supposed to reach this goal last year, while Spain has until the end of 2016, but is not on track.

The issue is sensitive, with Portugal expected to bring its deficit in line this year and Spain grappling with political paralysis after two elections within seven months have failed to produce an outright winner.

"I think we are all in agreement here that we have to apply the rules we set ourselves, which include enough flexibility," German Finance Minister Wolfgang Schaeuble said.

But Moscovici noted that, while it is crucial to ensure the credibility of the EU's rules, these are "not a punishment." There are "intelligent" means to apply the rules without harming growth and job prospects in Spain and Portugal, he added.

"It would be sufficient to have the finding that they were in breach. We are not interested in having sanctions applied to them," Irish Finance Minister Michael Noonan added.

The commission indicated last week that fines for both countries could be whittled down to zero.

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