The UK could still end up staying in the EU if political events in Britain were to lead to a new leader of the opposition Labour Party, leading economist Jim Power has said.
He said the probability that the UK will fail to trigger Article 50, which formally starts the clock on London disengaging from the union, stands at a significant 25%.
That probability would rise steeply should Owen Smith become the new Labour leader because he would likely campaign for a new referendum for the UK to stay in the EU, he said.
Presenting the Friends First annual economic outlook, Mr Power said it remains likely that UK prime minister Theresa May will use Article 50 next spring. However, the split will be a complex process and extend far beyond the two years stipulated in the EU treaty.
Under those circumstances, Irish governments should argue against EU states that may wish to enforce punishing terms and instead help the UK secure the best possible access to the single market at the least possible cost, Mr Power said, adding that the UK securing the same access as Norway would be in the best interests of the Irish economy.
Dublin cannot influence the worse effects of the UK’s Brexit vote, such as the sharp drop in the value of sterling against the euro, which makes it less profitable for companies based in the Republic to export into Britain.
That means the Government has to avoid loading additional costs on businesses, Mr Power said.
Despite the uncertainty, he said the outlook is still positive and the economy here could grow by “at least” 4.3% this year and 3.7% on average through 2021, as projected by the Government. Uncertain times will likely mean the jobless rate will only fall to a low of 6% in future years, down from a revised rate of 8.3% in July.
Boosting supply of new homes is the best way to resolve the housing crisis, he said, and the Government should avoid giving subsidies to first-time buyers which would only fuel house price inflation.
The Central Bank should resist industry pressure to adjust its mortgage lending rules, which have worked to stem huge price increases.
On mortgage arrears, Mr Power said that although “the situation is improving”, the high level of indebtedness “remains a significant challenge for” banks and borrowers.
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