12 February 2016

Reuters: Britain's economy will be worse off if it leaves the EU

All but one of 28 economists in the poll taken this week said the Britain would take a hit if the vote - which could take place by June - meant exiting the EU. The sole dissenter said the economy would be unmoved, not better off.

Arguments about the economy are central to the debate. Supporters of Britain leaving the EU say companies would be less bound by red tape, the country would be able to strike its own free trade deals and its existing EU partners would not want to hurt bilateral trade.

But analysts at some of the world's biggest banks said an exit could shrink Britain's economy by as much as 2 percent over the next couple of years and could take as much as 10 percentage points off GDP over the next decade.

Most of the mainly UK-based market and academic economists polled expected trade to worsen with Britain struggling to negotiate a favourable trade deal with its former EU partners after renouncing membership of the world's largest trading bloc.

Against this backdrop, a slim majority of economists see Britain's hefty current account deficit widening, underscoring a risk highlighted by the Bank of England. [...]

"A Brexit outcome will make me more pessimistic for our growth prospects in the second half of 2016 and the medium term," Costas Milas, professor of finance at the University of Liverpool, said.

He said it would trigger "huge" investor uncertainty and make it more expensive for the government to sell British debt.

"This higher yield will add to the cost of borrowing that companies face and will delay their investment decisions."

As well as the risk of Britain losing its unfettered access to its biggest trading partner, its companies might find it harder to tap into the pool of potential employees in the rest of the EU to fill their vacancies. Britain could also end up outside an area that accounts for just under a third of the value of all cross-border investment.

Even though some analysts said an exit could prompt a fall in sterling and make British exports more attractive abroad, 23 out of 28 economists expected it to hurt British trade, while 15 said Britain's current account deficit could widen. [...]

"Brexit could generate a UK balance of payments crisis," Daniel Vernazza, lead UK economist at UniCredit, said. "It's an illusion to think that the UK can retain access to the single market and have more flexibility."

UniCredit estimates that the value in trade would fall by one-eighth if Britain left the EU and joined the European Free Trade Association, costing Britain 6 percent of GDP over the next decade or so. [...]

Full article on Reuters

© Reuters