According to a recent study from the UK Treasury, voting to leave the European Union at the upcoming referendum would trigger a “year-long procession.” The study has just been released by Chancellor George Osborne, who warned that an exit from the EU would subject the UK’s economy to an “immediate and profound” shock.
The Treasury report is not the first source to warn of the possibility of a recession. Earlier this month Mark Carney, governor of the Bank of England, warned of the possibility that “a technical recession” could feature among the risks of leaving the Union.
In its report, the Treasury outlined what it described as “cautious” predictions for the UK’s economic outlook over the course of two years following a leave vote. For the purposes of the study, the Treasury assumed the successful negotiation of a bilateral trade agreement with the Union following the UK’s decision to leave.
The Treasury predicted a number of negative economic consequences in the period immediately following a “Brexit.” The UK’s Gross Domestic Product (GDP), the report predicts, would grow at a rate 3.6% lower than previously forecast if the country’s membership of the EU were terminated. The report also predicted that the rate of house price growth would suffer by 10%, and inflation would rise suddenly and significantly.
The report also looked at an alternative Brexit scenario, in which the UK left the single market of the EU and instead took up membership of the World Trade Organisation. This scenario, the treasury believes, would result in an even more profound shock for the UK’s economy. GDP would be hit by 6%, house price growth would slow by 18%, and the rise in inflation would be even more pronounced, the report predicts.
The Treasury said that it took a threefold approach to forecasting the UK’s economic position in the event of voters choosing the leave the EU. It looked at the volatility that financial markets would experience as a result of the change, the immediate effects of the UK’s trade borders becoming less open, and the impact that uncertainty would have on economic activity during the initial stages of the exit process.
The Vote Leave campaign, however, has criticised and disputed these predictions from the Treasury, describing them as “fantastical.” Iain Duncan Smith, a former cabinet minister and a prominent member of Vote Leave, said that the Treasury had presented a “deeply biased” view of the future and ignored the “upsides” of terminating EU membership.
Duncan Smith also stated his belief that leaving the EU would not cause the UK any economic shock.