Britain’s economy would suffer in the years after an exit from the European Union and U.K. politicians could only avoid the worst outcomes by carving out a deal similar to the one that currently exists, according to Oxford Economics.
The research group crunched nine different “Brexit” scenarios — with varying settings for trade, immigration, regulation and fiscal policy — all of which were negative for gross domestic product. In the worst case, the economy would be 3.9 percent smaller by 2030 compared with staying in the bloc and 21.1 billion pounds ($30 billion) of business investment would be lost. The best case sees a loss of 0.1 percent in GDP, though investment would be 2.4 billion pounds higher.
“The economic consequences were the U.K. to leave the EU would be substantial and far-reaching,” Andrea Boltho, Ekkehard Ernst and John Muellbauer wrote in the report., “The upside would appear to be limited while worse-case scenarios, although by no means catastrophic, would exert significant long-term damage to the U.K. economy.”
The study highlights the political importance of cutting a good trade deal and continuing to allow a high level of immigration in the aftermath of any exit. According to Oxford Economics’ analysis, the most damaging outcome would be a “populist” approach to immigration — dramatically reducing inward flows — and the U.K. losing its trade privileges with the EU and only having the status of a World Trade Organization “most favored nation.”
Oxford Economics also said the argument that the U.K. would benefit financially from not having to contribute to the EU budget is a “false economy,” because there is a long-term economic cost. The analysis is the latest in a multitude of reports from business lobbies and academic groups and banks assessing both the threats to the economy in the build up to June 23 vote and the potential impact of an EU exit in the short and longer term.
“Benign scenarios involve retaining some of the least popular aspects of EU membership,” said Henry Worthington, an associate director at Oxford Economics. “Despite the short-term benefit to the U.K. budget of no longer contributing to Brussels, populist policy choices would damage tax revenues by much more.”