Daily Management Review

Vote for Brexit will Bring risk of Year-Long Recession says UK Finance Ministry Report


05/23/2016




Vote for Brexit will Bring risk of Year-Long Recession says UK Finance Ministry Report
In his latest attempt to focus voters on the potential hit to the economy from an "Out" vote, British finance minister George Osborne said that Britain could sink into a year-long recession if it votes to leave the European Union.
 
"The British people must ask themselves this question: can we knowingly vote for a recession? Does Britain really want this DIY recession" Osborne said in excerpts of a speech he is due to make on Monday which were released by the finance ministry.
 
While pollsters say the outcome remains too close to call, recent opinion polls have shown voters are leaning toward an "In" decision on June 23 even as there is a month to go before Britons take their most important strategic decision in decades.
 
Forecasting lower living standards, a fall in house prices and higher shopping bills, the risks of a so-called Brexit for Britain's economy have been stressed by Osborne and Prime Minister David Cameron who are leading the "In" campaign.
 
Two post-Brexit scenarios were set out by the new analysis by the finance ministry of the referendum's short-term implications for economy.
 
The economy is predicted to be 3.6 percent lower after two years than it would be if Britain stayed in the EU in a milder 'shock' scenario and based on Britain reaching a trade deal with the EU, the ministry said. Compared to an "In" vote, house prices would be 10 percent lower and inflation would rise in an “Out” vote scenario.
 
If Britain defaulted to World Trade Organisation rules, which would raise barriers to trade, the economy would suffer a more severe shock if Britain left the EU's single market as suggested by some leading "Out" campaigners.
 
Compared to a scenario if Britain voted to stay in the EU, inflation would rise more sharply and house prices would be 18 percent lower and the economy would be 6 percent smaller within two years, the report said.
 
The new analysis was dismissed as being politicaly motivated by the rival "Out" campaign.
 
"This Treasury document is not an honest assessment but a deeply biased view of the future and it should not be believed by anyone," said Iain Duncan Smith, a former senior minister in Cameron's Conservative government.
 
Since Britain's economy would be able to ditch rules imposed by the bloc and strike its own trade deals, the economy would flourish outside the EU, argue supporters of a Brexit.
 
However bodies such as the International Monetary Fund and the Organisation for Economic Co-operation and Development have already issued a wall of warnings about the economic risks. Hence only leaving the EU can slow high levels of migration has become the core message that the "Out" camp has relied increasingly on in recent times.
 
Recently the Bank of England Governor Mark Carney had said earlier this month that Britain's economy could enter a technical recession - which means two consecutive calendar quarters of contraction - after a vote to leave the EU and Monday's forecast of a year-long recession by the finance ministry was gloomier than that warning.
 
Current uncertainty would fade rapidly with little lasting impact with a vote to remain in the bloc, the Treasury said.
 
British households would be 4,300 pounds worse off by 2030 than if they voted to stay in the EU, estimated a previously published finance ministry report on the longer-term consequences of an "Out" vote.
 
(Source:www.reuters.com) 






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