UK could be plunged into another crisis if it left EU

By  Szu Ping Chan

Economists at the Centre for Economic Performance (CEP), which is part of the London School of Economics, described a British exit as a "very risky gamble". It said the move would cost jobs, reduce investment and push up the price of goods, even if the Government managed to a strike Swiss-style agreement to keep trade channels open. 

According to Treasury estimates, the UK made a net contribution of £8.6bn towards the EU budget last year. While the CEP said a British secession would bring home around 0.5pc of national income as it would no longer have to subsidise agriculture and poorer members, it said the financial gains of not having to transfer money to the EU would be outweighed by the costs. 

Even under the most optimistic scenario, where Britain joined the European Free Trade Association (EFTA) and enjoyed the same access to the EU's internal market as countries such as Norway and Switzerland, the CEP claimed Britain would lose 2.2pc of gross domestic product (GDP) - or around £35bn in today's prices – because of the dynamic effects of an exit. 

Joao Paulo Pessoa, a researcher at the CEP and co-author of the report, said a "Brexit" could leave it "frozen out" of an increasingly integrated EU. "Even if we became like Norway and Switzerland where goods could be freely traded within the EU, there are other types of barriers that can increase between the EU and the UK," he said. "For example, due to different regulations in different countries, these are likely to affect strongly the financial sector and this will be another source of loss for the UK. 

"In the future you can imagine that the EU will continue to integrate, and the UK will not be in a position to take full advantage of this. And this is the most conservative scenario." 

The research body, which is part of the London School of Economics, said if an exit prompted banks and other large corporations to move their headquarters to others countries and reduce investment, London would lose its position as Europe's financial hub, which could shave as much as 9.5pc off UK GDP - or around £150bn in today's prices. By comparison, Britain's economy shrank by 7.2pc during the 2008 financial crisis. 

"The UK has this dream that they are really good negotiators, and believe that being outside the EU will let them negotiate better trade deals. But this is not necessarily true," said Mr Pessoa. "What will certainly happen is that a lot of the relationship that was built over all of these years inside the EU would be at stake." 

The CEP's research contrasts with a report published by Civitas this month that described claims that Britain's EU membership had given it a trade advantage as “empty rhetoric”. It highlighted that Britain's trade with other EU nations accounted for no more of its trade with all leading economies than it did on joining the European Economic Community in 1973. /Telegraph