LONDON – A British think-tank says a decision by U.K. voters to leave the European Union would deliver a significant shock to the economy — with the pound dropping by as much as 20 per cent in the immediate aftermath of the June 23 referendum.
Economists at the National Institute of Economic and Social Research estimated Tuesday that economic growth would slow to 1.9 per cent in 2017, compared with a rate of 2.7 per cent if Britain remains in the 28-nation bloc.
“In the short run, the current heightened levels of uncertainty are likely to persist, if not intensify, as the U.K. establishes its place outside the EU,” the think-tank said. “Financial markets are already pricing in a period of currency volatility around the referendum.”
NIESR joins economists at the International Monetary Fund, the Organization for Economic Co-operation and Development and the U.K. Treasury in warning of the consequences of a British exit.
NIESR says a so-called “Brexit” would see consumer spending per person fall by between 500 pounds and 2,000 pounds a year by 2030.
It predicts the pound would fall, in turn driving inflation by between 2 per cent to 4 per cent higher than it would be if the Britain had stayed in the EU.
An economy still recovering from the impact of the 2008 financial crisis would be hit by another whammy in terms of borrowing.
“It would also seem reasonable to expect an increase in credit premia across the economy, raising the cost of borrowing for the government, businesses and households.”