How a ‘Brexit’ could cost U.K. £100 billion and a million jobs
A British exit from the European Union could cost the U.K. a billion pounds ($1.44 billion) and almost a million jobs by 2020, an influential business group has warned
A so-called Brexit would cause a “serious shock,” triggering “significant economic and political uncertainty” in the short term, the Confederation of British Industry said in a PWC report released Monday. It would leave “negative echoes” that could last for many years, the lobbying organization predicted.
“By 2020, the overall cost to the economy could be as much as £100 billion and 950,000 jobs. Household income in 2020 could be up to £3,700 lower than it would otherwise have been,” said CBI Director-General Carolyn Fairbairn in the report, which was commissioned by the CBI itself.
“The economy would slowly recover over time, but never quite tracks back to where it would have been. Leaving the EU would mean a smaller economy in 2030,” she added.
British voters will take part in an in/out referendum on EU membership on June 23, and right now, polls show an extremely tight race between the “leave” and “remain” groups. A poll last week gave the leave campaign a small lead, raising concerns among several business groups that the U.K. will lose its close ties with mainland Europe. The EU is the U.K.’s biggest trading partner, and a exit would mean the British government would have to renegotiate trade deals in the region.
The CBI report looks at the economic impacts of a Brexit under two possible trade scenarios:
1. The U.K. reaches a Free Trade Agreement (FTA) with the union and can sell goods to the region without paying extra tariffs.
2. Negotiations prove more difficult and prolonged, leaving the U.K. bound to trade with the EU under the World Trade Organization’s (WTO) rules. This would mean Britain could no longer enjoy tariff-free trade.
“In both cases, the largest short-term impact on the economy is felt through the additional uncertainty that would result from a U.K. vote to leave,” the report said.
“By 2030, this post-exit uncertainty should be resolved, but we estimate that the net longer term impact of other changes related to EU exit could result in total U.K. GDP in 2030 being between 1.2% and 3.5% lower in our two exit scenarios than if the U.K. remains in the EU.”
Employment would also take a hit in the years after a Brexit, the report forecast. In the first three to four years following a departure, the unemployment rate could jump to 8%, compared with 5% under the stay-in scenario, it said.
Significant numbers of British voters have grown increasingly discontented with the EU in recent years, driven in part by the migration crisis in Europe and frustration over a perceived loss of sovereignty to Brussels. The main Brexit campaign group, “Vote Leave,” argues the U.K. has lost control over vital policies and would be better off not sending £350 million every week in financial contributions to the union.
Vote Leave chief executive Matthew Elliott criticized the CBI for using “deeply pessimistic” assumptions in its report and said the U.K. economy would continue to expand after an exit.
“The EU-funded CBI are desperate to recreate the same scare stories they spread when they urged Britain to scrap the pound and join the euro. They were wrong then and they are wrong now,” he said in a statement posted online in response to the report.
The uncertainty in the run-up to the referendum has weighed on U.K. financial markets, particularly the pound. Sterling has dropped 2.3% against the dollar GBPUSD, -0.6494% since the start of the year and is down 5.8% against the euro EURUSD, -0.0355%