23rd May 2016
The Prime Minister David Cameron and the Chancellor of the Exchequer George Osborne has warned that Britain could plunge into an instant recession if it leaves the European Union.
The latest analysis from the Treasury on the short term implications of a vote to leave the European Union suggest that a recession would last at least a year and leave GDP 3.6% lower than otherwise.
The Prime Minister David Cameron said: “As the Bank of England has said and the IMF has underlined, and the Treasury has now confirmed, the shock to our economy after leaving Europe would tip the country into recession. This could be, for the first time in history, a recession brought on ourselves. It would be a DIY recession.
“After all the pain, all the sacrifice by the British people, why would we want to put it at risk again? It would be like surviving a fall and then running straight back to the cliff-edge. It is the self-destruct option.
“The Treasury’s figures are based on the assumption that the UK manages to negotiate a bilateral trade agreement with the EU in the wake of Brexit. But it said that if Britain could not do such a deal the consequences would be still more damaging and GDP could be up to 6 per cent lower by 2018.”
The Chancellor George Osborne said: “With exactly one month to go to the referendum, the British people must ask themselves this question: can we knowingly vote for a recession? Does Britain really want this DIY recession? Because that’s what the evidence shows we’ll get if we vote to leave the EU”.
The Leave campaign dismissed the warning as further scaremongering.
Former Work and Pensions Secretary Iain Duncan Smith said: “This Treasury document is not an honest assessment but a deeply biased view of the future and it should not be believed by anyone.”
The Treasury said its economic analysis had been reviewed by Professor Sir Charles Bean, a former Deputy Governor of the Bank of England, who was “acting in a personal capacity”.
Investors still favouring Brexit
However a survey of 1800 share investors by the Share Centre suggests a majority will vote to leave despite concerns about the economic and financial impact.
When asked how they will vote on 23 June, 56% of personal investors responding to the survey indicated they will vote for Brexit, compared to 39% voting for Remain and only 5% undecided. With a month to go, this indicates opinion is now crystallising. Although the gap has narrowed since The Share Centre’s last survey in February which showed 62% in favour of Brexit, 31% intending to vote Remain and 7% undecided, it appears investors remain firmly in favour of the UK leaving the EU.
This is in spite of a strong sense that a vote for the UK to leave will have a negative impact on the stockmarket with 59% are now indicating they are concerned about the impact a vote to leave will have, and two thirds (66%) believing such a vote would have a slightly or largely negative effect on the market.
This apparent willingness to overlook the potential negative impact on the market, may be explained by the fact that 53% of investors believe a vote to leave will have a slightly or largely positive impact on the UK as a whole.
One in five more than double the number when last surveyed in February indicated that they are already changing their investment behaviour ahead of the referendum, deferring investment decisions. A further 18% indicated they plan to do so as the referendum approaches. The change in this data over the last nine months is particularly stark, with 5% indicating they were changing their behaviour last August, 10% in February and now 20%.
The establishment has a clear credibility issue in the eyes of personal investors. When asked who they trust most when talking about the issues in the EU referendum, out of David Cameron, Jeremy Corbyn, Boris Johnson or Michael Gove, 38% of respondents said ‘none of the above’. The highest scoring spokesperson was Michael Gove at 21%, almost double the next highest, being David Cameron at 13% (Boris Johnson scored 11% and Jeremy Corbyn scored 3%).
When asked whether President Obama’s intervention had impacted their decision on which way to vote, most personal investors (51%) said it made no difference. Of those whom it did influence, nearly three times as many (30%) said it made them more likely to vote to Leave as compared to more likely to vote to Remain (12%).
Economics has now become the predominant issue, with 34% ranking this as the main factor likely to influence their vote, up from 24% in February. When asked if the recent global economic volatility would affect their decision, 16% said it makes them more likely to vote to Remain, compared to 14% who said it makes them more likely to vote to Leave (66% say it makes no difference and 4% are undecided).