Britain’s economy would be tipped into a year-long recession, with at least 500,000 jobs lost and GDP around 3.6% lower, following a vote to leave the EU, new Treasury analysis launched by the Prime Minister and Chancellor shows.
Speaking at B&Q in Eastleigh, Hampshire, the Prime Minister and Chancellor set out the Treasury’s analysis of the impact on the nation’s economy over the immediate period of two years following a vote to leave.
This analysis shows that such a decision would cause an immediate and profound economic shock across the country, creating instability and uncertainty which would be made worse by the complex negotiations that would follow to agree the terms of Britain’s exit from the EU and its new relationship with the rest of Europe.
Echoing the recent warnings from the independent Bank of England and the International Monetary Fund, the central conclusion of the Treasury’s new analysis is that the effect of this profound shock would be to push the UK into recession and lead to a sharp rise in unemployment.
The analysis follows the Treasury’s recent assessment of the long-term impact on Britain’s economy of leaving the EU. That document concluded that the UK would be permanently poorer if it left the EU with a central estimate that GDP would be £4,300 lower in 2015 terms for each household after 15 years and every year thereafter.
The Treasury’s new analysis sets out how the immediate economic impact of a vote to leave would be driven by 3 key factors:
- the ‘transition effect’: the emerging impact of the UK becoming less open to trade and investment under any alternative to EU membership
- the ‘uncertainty effect’: the rise in uncertainty following the referendum and the impact that has on economic decisions by businesses and households
- the ‘financial conditions effect’: the extent of financial market volatility
Through a combination of these 3 factors, a vote to leave the EU would have a damaging effect on both the demand and supply side of the economy. The Treasury has modelled two scenarios: a ‘shock’ to the economy and a ‘severe shock’.
Prime Minister David Cameron said:
“This analysis shows the stark choice facing the British people.
Even in its more cautious estimate, the Treasury finds that a vote to leave the EU would cause an economic shock that would tip Britain into recession and cost at least half a million jobs. The pound would fall, prices in the shops would rise, and the housing market would be damaged.
On 23 June, people face a stark choice: economic security and a vote to Remain, or a leap in the dark which would cost jobs and raise prices.”