The UK economy would face a “serious shock” even if were to strike new trade deals rapidly after leaving the EU, the Confederation of British Industry — the CBI — has said in a major report published today.
In a robust contribution to the UK debate ahead of its referendum in 13 weeks’ time, the business group says there are no rosy outcomes if Britain were to vote for a so-called Brexit on June 23.
Even the most favourable scenario under which the UK strikes a new free trade agreement with the remaining EU bloc within five years of the vote to exit would cost its economy £55 billion (€70.5bn).
A less favourable outcome by which long drawn-out talks take place under World Trade Organisation rules would cost its economy even more, £100bn.
The CBI’s figures are based on a 79-page report by accountants PwC, which deals with the hot issues of trade, employment, and migration.
The report makes few references to the Republic.
It argues however that the windfall for Britain striking bilateral deals after leaving the bloc may be illusory because its trade with the Far East and Latin American economies remain relatively low.
“Although much discussion has centred on the importance of emerging markets as UK export markets, they are not yet that significant,” according to the report.
“We still export more to Ireland, for example, than to China and Hong Kong combined. In the future, we expect this to change, but it would be a slow process, as this would require structural adjustments to reorient exports towards emerging markets,” it said.
It also cited historical research showing EU membership delivers big US foreign direct investment in the UK, Ireland, Spain, and Sweden.
The CBI said increased economic and political uncertainty following a Brexit vote would be “significant” and any talks could drag on for more than two years before its new relationship with the EU is agreed.
It expects “increased financial market and exchange rate volatility, higher risk premia in credit and equity markets, and possible consequential impacts on business confidence and investment.”
“A process for leaving is set out in Article 50 of the Lisbon Treaty, but it’s worth saying that Article 50 has never been triggered.
"By choosing this path the UK would be taking unprecedented action,” said CBI director of economics Rain Newton-Smith.
“We know that the European Commission would draw up an exit agreement. This would then be agreed by qualified majority in the European Parliament and Council, before being offered to the UK.
"The UK can’t participate in the discussions about its withdrawal at the Council and it can’t vote on it in the Parliament,” she said.
“In trading terms as well, the EU would hold the balance of power. Some see the fact that we import more from the EU than we export to it as proof that they need us more than we need them,” Ms Newton-Smith said.
“But this ignores the fact that 45% of the UK’s exports go to the EU, it’s our biggest export market by far — compared to just 7% of total EU exports which come here,” she said.
“So while it may be in both sides’ interest t o complete a trade deal, the balance of power would be far from equal,” she added.
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