The World Economic Forum’s annual competitiveness index ranked the UK as the eighth best economy in the world, down from seventh last year.
The WEF said the Brexit vote had not yet fed through into the rankings, but that it will likely do so in over the coming years.
Switzerland topped the rankings for the ninth straight year, thanks to an efficient labour market, strong innovation and technological readiness, according to the WEF’s report. The US moved up one place to second, despite fears that a Donald Trump presidency could mean a more protectionist future for the world’s largest economy.
The WEF said Brexit is "likely to further undermine the country’s competitiveness" in future.
The organisation has previously warned that Brexit is likely to have negative effects in both the short and long term. In the short term, prior to any changes to the law, increased uncertainty will cause reducing investment, consumption, and foreign trade as consumers and investors become more cautious, the organisation said in its 2016-17 competitiveness report.
Beyond that, the UK is likely to face the full negative impact of a lack of access to the single market. That, the WEF said, will increase the cost of trade, investment, and the movement of labour, all of which will eventually be reflected in the economy’s overall efficiency, it added.
The organisation, best known for its annual meeting in Davos, Switzerland, said that ten years after the financial crisis Europe was finally showing "cautious signs of recovery" with the euro area predicted to grow 1.9 per cent this year and emerging European markets 3.5 per cent.
However it warned the pick-up in economic activity "still looks fragile, and sustained momentum cannot be taken for granted". European economies still have to deal with the problems of high youth unemployment and not enough investment particularly in energy, and transport infrastructure.