EU exit will see economy shrink and unemployment increase, Treasury warns

23 May 16

Brexit would trigger a “DIY recession”, plunging Britain into a sustained contraction of its own making and adding half a million people to the ranks of the unemployed, chancellor George Osborne said today.

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Treasury analysis published today stated that a decision to leave the European Union would see the economy shrink by between 3% and 6%, taking at least 500,000 jobs with it.

“This is what happens if Britain leaves,” Osborne said, launching the analysis at a B&Q store in Southampton.

“The economy shrinks, the value of the pound falls, inflation rises, unemployment rises, real wages are hit, so too are house prices, and as a result – government borrowing goes up.”

The chancellor warned that the country has just “one month to avoid a DIY recession”, which would see a return of austerity years the UK has just endured in order to deal with the consequences of sustained negative growth.

Today’s analysis follows the Treasury’s recent assessment of the longer-term impact of leaving the European Union on the British economy, which found the economy would be smaller by £4,300 for each household after 15 years.

The new figures focus on the more immediate impacts of Brexit, covering the two years following the vote.

According to the analysis, which was reviewed by former deputy governor of the Bank of England Sir Charles Bean, in the years up to 2018 Britain would endure a “profound economic shock” driven by uncertainty, less open trade and investment and financial market volatility.

Considering two different scenarios entailing a “shock” or a “severe shock”, the Treasury found Brexit would result in an economic contraction of at least 3%, but that could be as much as 6%.

Real wages would fall by around 2.8-4%, house prices by 10-18% and the value of the sterling by 12-15%, the Treasury said.

At the same time, between half a million and 800,000 jobs would be lost, it continued. Inflation would rise, and public sector borrowing would swell by between £24bn and £39bn.

Bean found the figures provide “reasonable estimates of the short-term impact of a vote to leave”.

Prime minister David Cameron pointed out that even the Treasury’s more cautious estimates find an economic shock that would tip Britain into recession.

“This analysis shows the stark choice facing the British people,” he said.

Meanwhile, separate figures published by the Treasury today warn that a vote to leave would add more than £220 to the annual shopping bill for food, drink, clothes and footwear for a family of four within the next two years.

It said this would be the result of a fall in the value of the sterling by more than 10% triggered by the uncertainty around Britain’s exit, which would see the cost of imports rise – costs then passed on to the consumer.

But the Treasury’s warnings were challenged by former Cabinet minister Iain Duncan Smith for the Vote Leave campaign who said government forecasts were not to be trusted.

“The Treasury has consistently got its predictions wrong in the past. This Treasury document is not an honest assessment but a deeply biased view of the future and it should not be believed by anyone,” he said.

“It is a fact that we hand over £350m a week to the EU. If we Vote Leave we can take back control of that money and use it to help people here in Britain. We will also take back control over our economy creating hundreds of thousands of new jobs as we do trade deals with growing countries in the rest of the world.”

The International Monetary Fund, the OECD, the Bank of England and others have all also published analysis detailing the negative economic impacts of Brexit, while G20 ministers and global leaders including US president Barack Obama have also cautioned against leaving the EU. 

Osborne warned that the impacts of Brexit would hit every part of Britain and its economy, but that working people will pay the highest price.

“The British people have worked so hard to get our country back on track,” he said. “Do we want to throw it all away?

“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 evidences shows we’ll get if we leave the EU.”

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