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03 January 2016

Financial Times: Membership of reformed EU seen as vital to economic security

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David Cameron’s claim that British membership of a reformed EU is vital to Britain’s economic security was backed by an overwhelming majority of economists in an annual Financial Times survey.

Regardless of the UK prime minister’s renegotiation of Britain’s terms of EU membership, most of the more than 100 economists thought economic prospects following a Brexit would be hit if voters decided to leave. Economic arguments are central to both the “in” and “out” camps as they prepare for a referendum on whether the UK should leave the EU. It could be held as early as June.

The survey results show decisive support from economists for Britain to remain in the EU; of those surveyed, none thought a vote to leave would enhance Britain’s economic growth this year, with 67 thinking the outlook would deteriorate. [...]

The 11th FT survey of economists, which had success a year ago in predicting the outlook for 2015, was otherwise positive about the outlook for a fourth year of decent economic growth, and a continuation of ultra-low interest rates with only one rise expected. Concerns were raised about Britain’s trade performance, still elevated house prices and scepticism that the deficit would fall as quickly as George Osborne, chancellor, hoped.

Brexit was top of the risks to prosperity that economists cited. For this year, concern was voiced that a vote to leave would cause capital to flee the UK because of the uncertainty of Britain’s place in the world that such a vote would create. Neville Hill of Credit Suisse said a Brexit vote “could well be the catalytic event that turns the UK’s current account deficit from ‘something to worry about’ to ‘a problem’.”

The effect on Britain would be “dramatic”, said Willem Buiter, chief economist of Citi. “The rest of the EU would drive a very hard bargain with the UK, the City would lose most euro-related business [and] foreign direct investment into the UK would collapse. Deep recession and a financial crisis are inevitable,” he predicted.

But Ruth Lea, chairman of Economists for Britain, denounced what she called “baseless scaremongering” and said that, given the UK’s yawning trade deficit with the rest of the EU, it would be in everyone’s interest to get a trade deal after any Brexit. [...]

In the medium term, where opinion in the FT survey was even more strongly opposed to exit, the concerns were that companies would no longer use Britain as a base for their European operations, that investment would suffer, the City would be harmed and favourable trading relationships would not be guaranteed with other parts of the world.

Forming an overwhelming majority, 76 economists thought that leaving the EU would harm prospects, with only eight thinking the outlook outside the EU would be better and 18 believing it would make little difference.

Charlie Bean of the London School of Economics and formerly deputy governor of the Bank of England said: “The continuing uncertainty surrounding the terms of access of UK firms to the EU market mean that this dampening effect on investment could be expected to last for several years.” [...]

Full article on Financial Times (subscription required)

© Financial Times

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