Leaving the EU would cause a “serious shock” to the UK economy, with a potential loss of nearly a million jobs, according to a new business study.
Research commissioned by the CBI also found that Brexit could cost the country’s economic output around £100 billion, while “negative echoes” could last for years.
The findings came from an analysis by professional services firm PwC on the potential impact of the UK leaving the EU on trade and investment, examining two different exit scenarios, one at the optimistic end of the range, and the other recognising the likelihood of trade deals being concluded.
Significantly more pessimistic cases could be constructed, said the report
Under both cases, UK living standards, GDP and employment would be “significantly reduced” compared with staying in the EU.
The analysis found the cost to the British economy of leaving of as much as £100 billion - the equivalent of around 5% of GDP - by 2020. Even if a Free Trade Agreement with the EU is secured rapidly, the analysis indicated that GDP could be 3% lower by 2020.
GDP per household in 2020 could be between £2,100 and £3,700 lower, and the UK’s unemployment rate between 2% and 3% higher, than if the UK had remained in the EU.
Economic growth between 2017 and 2020 could be seriously reduced and possibly be as low as zero in 2017 or 2018, according to the report.
The study followed a survey of CBI members a week ago which found that four out of five wanted to remain in the EU, with just 5% wanting to leave.
Carolyn Fairbairn, director general of the CBI, said: “This analysis shows very clearly why leaving the European Union would be a real blow for living standards, jobs and growth.
“The savings from reduced EU budget contributions and regulation are greatly outweighed by the negative impact on trade and investment. Even in the best case this would cause a serious shock to the UK economy.
“By 2020, the overall cost to the economy could be as much as £100 billion and 950,000 jobs. Household income in 2020 could be up to £3,700 lower than it would otherwise have been. The economy would slowly recover over time, but never quite tracks back to where it would have been. Leaving the EU would mean a smaller economy in 2030.
“The findings from PwC’s independent study also explain why the majority of UK businesses are in favour of remaining within the European Union. Even under optimistic assumptions, an exit triggers serious economic disruption.”
Andrew Sentance, senior economic adviser at PwC, said: “The three big impacts of leaving the EU we have been able to identify are increased uncertainty, a negative shock to trade and investment, and reduced labour supply through migration. While the potential to reduce the burden of regulation and lower fiscal contributions to the EU could be offsets, the net impact of the UK leaving the EU is still likely to be negative for GDP, employment and living standards, both in the short-term and the long-term.”
Ms Fairbairn will present the findings of the study in a lecture today at the London Business School where she will say that if the UK leaves the EU without a free trade deal, 90% of British exports to the EU could face tariffs, with sectors such as textiles and transport equipment hit particularly hard.
Products imported into this country could also face tariffs, she will say.