A UK
exit from the EU would immediately hit confidence and raise uncertainty
which would result in GDP being 3% lower by 2020, which equates to GBP
2200 per household. The OECD states that such costs are already piling
up in a new study released yesterday.
The projected hit to living standards would amount in effect to a permanent
“Brexit tax” on households, the OECD says. Presenting the analysis in a speech
at the London School of Economics, OECD Secretary-General Angel Gurría said:
“Leaving Europe would impose a Brexit tax on generations to come. Instead
of funding public services, this tax would be a pure deadweight loss, with
no economic benefit.”
The UK would suffer from the loss of unrestricted access to the Single Market.
It would also face new barriers in many of the third-country markets to which
preferential access was lost as a result of leaving the EU, even if it succeeded
in negotiating a new trade arrangement with Europe. An important risk is
that capital inflows would be disrupted, leading to a jarring contraction
of the UK’s record-high current account deficit of 7% of GDP.
A decision by Britain to leave the European Union would cause
a severe negative shock to the economy and weaken GDP growth for many years,
equivalent to a cost per household of GBP 3200 per year by 2030 at today’s
prices, and as much as GBP 5000 in the worst case scenario according the
new OECD study.
Being outside the EU would further damage trade, foreign direct investment
and productivity, according to the study.
The longer-term effects of weaker technical progress, migration and capital
caused by Brexit are projected according to three scenarios: optimistic,
central and pessimistic. In the optimistic projection the negative impact
on GDP is around 2.7% by 2030, but in the pessimistic scenario it would be
more than 7.5%. In the central scenario UK GDP would be more than 5% below
what would be expected if the country remained in the EU. This GDP shortfall
is equivalent to GBP 3200 per household.
Net transfers to the EU budget are relatively small, at 0.3% - 0.4% of GDP
per annum in the years ahead, and the saving from a reduction in these transfers
would be more than offset by the impact of slower GDP growth on the fiscal
position. It is estimated that by 2019 the budget deficit would be higher
by 0.9 percentage points of GDP.
The study also notes that the estimated costs of Brexit do not take into
account the fact that remaining in the EU could lead to additional GDP growth
as further development of the Single Market boosts trade and foreign direct
investment.
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