Brexit Could Tip the Economy Into Recession, U.K. Treasury Says -- 2nd Update
By Jason Douglas
LONDON--The opposing camps in the debate over the U.K.'s
membership of the European Union traded blows over the economy
Monday, with anti-EU campaigners criticizing an official analysis
suggesting Britain could be plunged into a yearlong recession if
Britons vote to leave the bloc in a referendum next month.
The U.K. treasury said in a new analysis that the British
economy would likely experience "a profound shock" if voters decide
to quit the 28-member EU, potentially causing "a marked
deterioration in economic prosperity and security."
Speaking alongside Prime Minister David Cameron to present the
analysis, Treasury chief George Osborne said a vote in favor of a
British exit, or Brexit, could tip the economy into recession, when
output falls for two or more consecutive quarters.
The treasury's sums suggest national income could be sharply
lower after two years than it would be if voters choose to stay in
the EU, a shortfall it said would mean higher government borrowing,
higher unemployment and lower wages.
"Within two years the size of our economy--our GDP--would be at
least 3% smaller as a result of leaving the EU, and it could be as
much as 6% smaller," Mr. Osborne told workers gathered at a branch
of a home-improvements company in southern England. "We'd have a
year of negative growth--that's a recession."
Mr. Cameron said that voting to leave the EU shortly after the
U.K. climbed out of the deep downturn caused by the global
financial crisis in 2008 "would be like surviving a fall and
running straight back to the cliff edge. It is the self-destruct
The treasury's assessment of the potential short-term costs of
Brexit comes on the heels of similar warnings from the Bank of
England, the International Monetary Fund and the Organization for
Economic Cooperation and Development, all of which concur that
leaving the EU could damage the U.K.'s economic prospects by
damping trade and slowing investment.
Britons are scheduled to vote June 23 on whether to remain in
the EU or go it alone as the world's fifth largest economy.
But advocates of a British exit fiercely dispute such claims,
saying they fail to take into account the potential benefits of
leaving an association they say stifles business with red tape and
raises barriers on trade with the rest of the world.
"We can flourish outside," Boris Johnson, the former
Conservative mayor of London and leading pro-Brexit campaigner,
told a crowd of people at a campaign stop in the north of
Patrick Minford, professor of applied economics at Cardiff
University and one an eight-strong group called Economists for
Brexit, said at an event in London that the Treasury's
"shock-horror" report is based on faulty assumptions. He has
calculated that the British economy could grow faster outside the
EU, because of potential gains from lowering trade barriers with
non-EU countries and savings from foregoing payments into the EU
Any financial-market volatility caused by uncertainty over the
U.K.'s future prospects would likely be short-lived, Mr. Minford
added in an address to Politeia, a London think-tank focused on the
role of the state in social and economic affairs.
Economists at Capital Economics, a consultancy founded by
pro-Brexit economist Roger Bootle, said in a note to clients that
the treasury analysis doesn't factor in interest-rate cuts or other
policy responses that the authorities may pursue to counteract any
post-referendum slowdown. A Brexit vote might cause a slowdown but
"the treasury's central forecast of a recession, albeit a mild one,
goes a bit too far," said U.K. economist Scott Bowman.
The sparring over the economy comes as the referendum campaign
enters its final weeks. Polls show the public are split over
whether to remain in the EU, although most show a slim lead in
favor of staying in.
Nick Winning contributed to this article.
Write to Jason Douglas at email@example.com
(END) Dow Jones Newswires
May 23, 2016 12:04 ET (16:04 GMT)
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