Leaving the EU would cause a “major economic shock” to the UK, severely cutting growth and costing the average person the equivalent of a month’s salary by the year 2020, the Organisation for Economic Co-operation and Development said Wednesday.
Less than two months before Britain votes in a June 23 referendum on whether to remain in the EU, the OECD’s stark warning on the potential economic impact of “Brexit” will come as a major blow for those campaigning for the UK to leave the 28-nation bloc, many of whom have claimed doing so would not have a negative effect.
“A UK exit would be a major negative shock to the UK economy,” the OECD argued in a comprehensive report made public on Wednesday. “In some respects, Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy.”
The OECD – which seeks to foster cooperation between the world's leading economies – said that uncertainty over Brexit had already begun to have a negative impact on financial markets and had weakened the UK’s economic growth, but that the situation would get significantly worse if Britain votes to leave.
By 2020, the country’s GDP would be more than 3 percent smaller than if the UK remained in the EU, equating to a cost per household of £2,200 (€2,835) in today’s prices, according to the report.
Brexit 'costly in long and short term'
The report states that the consequences of Brexit could be even more costly in the longer-term. The OECD estimated that in a “central” scenario – ie, neither particularly optimistic nor pessimistic – UK GDP would be over 5 percent smaller by 2030 than if the UK had remained a member of the EU, the equivalent of £3,200 per household.
In the organisation’s “pessimistic” scenario, the cost could rise to as much as 7.7 percent of GDP, or £5,000 per household.
Speaking to the BBC, the OECD’s secretary-general Angel Gurria claimed that Brexit would act “like a tax” on UK citizens.
Gurria said the estimated cost of Brexit, when spread out equally, “is the equivalent to roughly missing out on about one month's income within four years but then it carries on to 2030”.
"That tax is going to be continued to be paid by Britons over time," Gurria added.
Loss of unrestricted access to the EU’s single market would be one of the biggest blows to the UK’s economy, resulting in higher tariffs for goods and other barriers to trading with the EU, said the OECD's report. The UK would also lose out on trade deals the EU currently has with other third-party countries and blocks.
The UK could establish a new free trade agreement with the EU, but this would take time and likely still result in higher costs to trading with the bloc than is currently the case, the OECD said.
Brexit will hit immigration
The OECD report says that the likely significant drop in immigration to the UK after Brexit would also damage the economy.
“Immigration accounts for one-half of UK GDP growth since 2005, with more than 2 million jobs created. Curbs to the free movement of labour from the EU and, more importantly, a weaker UK economy after exit, would gradually reduce the incentives for economic migration to the UK and would be a cost to the economy,” said the report.
Nigel Farage, leader of the anti-Europe UK Independence Party, was dismissive of the report's findings, however.
"Yeah, yeah, yeah - IMF, OECD, a whole series of international organisations stuffed full of overpaid people who failed in politics mostly," he told BBC Radio 4’s Today programme.
“The professor of economics at Cardiff University, Patrick Minford, said very clearly that outside the European Union the average British family would be £40 a week better off.”
The OECD’s report follow US President Barack Obama’s warning to the UK that Brexit would harm trade with the United States during a visit to London last week.
The UK would be “at the back of the queue” in trade with the US as “us having access to a big market with a lot of countries rather than trying to do piecemeal trade agreements is hugely efficient”, the president said.
Date created : 2016-04-27