28th Oct 2016

Brexit would be 'very costly gamble'

  • Leaving the EU would hurt the UK economy in lost trade, warns an LSE research unit (Photo: J. A. Alcaide)

Increased trade and regulatory costs would cost the UK economy up to 9.5 percent of its output if the UK left the European Union, according to new research by the London School of Economics.

The findings are contained in the 'Brexit or Fixit'? report by researchers at the Centre for Economic Performance, which forms part of the university.

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"Our current assessment is that leaving the EU would be likely to impose substantial costs on the UK economy and would be a very risky gamble," the paper states.

Under a 'pessimistic' scenario in which tariff barriers or differing standards of regulation between the EU and UK lead to increased trade costs, a 'brexit' could cost 9.5 percent of GDP, equivalent to £150 billion, and a larger drop than the 7 percent recession suffered by the UK during the 2008-9 financial crisis.

This would more than wipe out the gains, estimated at 0.5 percent of output, that would be made by the UK no longer contributing the £8.6 billion (€10.3 billion) that it paid into the EU budget in 2013, the paper argues.

The paper also considers an 'optimistic' scenario under which the UK would have a similar relationship with the EU to that of Switzerland or Norway, and enjoy virtually unfettered terms of access to the EU's internal market.

This would cost the UK 2.2 percent of economic output, equivalent to £35 billion per year.

The paper also contradicts claims made by fellow think tank Civitas that UK trade with the rest of Europe has not increased as a result of EU membership, stating that the proportion of UK exports going to the EU has increased from just over 30 percent in 1973, when the UK joined the then EEC, to around 50 percent.

"The dream of splendid isolation may turn out to be a very costly one indeed," it concludes.

The analysis comes at the end of a week in which several opinion polls have indicated an upswing in public support for remaining in the EU.

A survey by the Pew Research Centre, a US think tank, found that 52 percent said that they had a 'favourable view' of the EU, and that an 'in/out' referendum would see Britons opt to stay in the EU by 50 percent to 41 percent. Meanwhile, 41 percent agreed that European economic integration had been good for the UK economy, up 15 percent from last year.

A poll by Ipsos Mori suggested that Britons would back EU membership by 54 percent to 37 percent.

But the UK independence party, which campaigns for the UK to leave the 28-country bloc, still holds a narrow poll lead ahead of next Thursday's European elections.

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