OECD Issues Financial Warning of Brexit

OECD Issues Financial Warning of Brexit

The effect on the markets was apparently endorsed within the last week as the Organisation for Economic Cooperation and Development (OECD) issued a stark warning of the economic risks should Britain decide to leave the EU. A Brexit would apparently back up claims made by UK chancellor George Osborne that the economy would shrink, and it would cost every home in the country the equivalent of £2,200.

Endorsement of the Campaign

The OECD warning has acted as an endorsement for the campaign to remain within the EU. The secretary-general for the organisation said that leaving would be the same as losing a month’s income over four years. This latest warning comes alongside a chorus of damning economic predictions from the UK’s financial sector.

This differs from the disagreement among economists in the 1990s when Britain had to make a decision on whether to join the Eurozone.

The Short-Term Effect

But the OECD’s analysis does differ from the analysis provided by the Treasury. The report from the OECD says that spending will be held back immediately and confidence will collapse during the waiting period between a successful Brexit vote and the actual abandonment of the EU by the end of 2018.

Average gross domestic product is expected to decrease by 3% by the year 2020. The rest of the EU economy would take a hit of 1% if the UK decided to stay, as a result of the uncertainty regarding the country’s position within the organisation.

The Long-Term Effect

In the long-term, the report said that Britain would have to endure more restrictive trading agreements with the EU. There would be lower foreign investment and fewer skilled immigrants coming to the UK. In the long-term, the British economy is expected to take a hit of 5% on gross domestic product. This is slightly lower than the 6.2% decrease provided by the Treasury.

Cost to Public Finance

The cost to public finance is expected to be huge. Although campaigners for Brexit say that the savings made by not contributing to the EU outweigh the amount lost, the OECD appears to contradict this. They said that due to the amount of tax lost from the Treasury’s coffers, the overall effect on public spending would be negative.

Overall, this could tip the balance against the decision to leave the EU, as it did against the decision for Scotland to leave the UK.

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