Brexit Economists Hit Back Back With Claim U.K. Would Thrive

The Brexit Debate: What Happens if the U.K. Leaves the EU
  • `Economists for Brexit' see 4% GDP gain if U.K. leaves EU
  • Group attacks `deeply flawed' Treasury analysis of options

Brexit campaigners sought to seize back the initiative in the referendum battle as eight high-profile economists declared Britain would do better outside the European Union.

Analysis published by the U.K. Treasury on the consequences of leaving the EU is a “misleading piece of propaganda,” according to the group, which includes Patrick Minford, a professor at Cardiff University, Gerard Lyons, chief economic adviser to London Mayor Boris Johnson, and Roger Bootle, founder of Capital Economics Ltd. In an arrangement under which the U.K. accessed EU markets under World Trade Organization terms, gross domestic product could increase 4 percent over 10 years, they said in a report.

“The reality is that under a WTO agreement, the U.K. will be far better off,” Minford said at an event in London on Thursday. “Walking away from the EU, not negotiating a new agreement with the EU or putting up any new trade barriers will bring about a 4 percent gain in GDP.”

The campaign to quit the EU has been on the back foot over the economy in recent weeks following a chorus of warnings about the potential fallout. U.S. President Barack Obama said last week that Britain would go to “the back of the queue” for a new trade deal if voters decide to leave the EU in the June 23 referendum.

Growing Warnings

Obama’s strongly worded intervention came after the Treasury issued a 200-page analysis claiming a Brexit would inflict permanent economic damage, with the “WTO model” representing the worst of all options -- a 7.5 percent loss of economic output after 15 years -- as trade and investment is hit.

The Brexit model presented Thursday suggests U.K. output would grow 2 percent in the medium term, competitiveness 5 percent and real disposable wages 1.5 percent as regulatory burdens are removed, trade is liberated and Britain gains control over immigration. The budget and current-account deficits would be smaller and Britons would enjoy cheaper goods.

“The EU is a customs union that protects certain industries, notably agriculture and manufacturing, forcing higher prices upon EU consumers,” according to the report. “Leaving the walled garden of the EU and trading on a free-trade basis under WTO prices will decrease prices, provide a boost to GDP and free the U.K. from having to comply with such EU policies as the free movement of people.”

London Finance

Lyons challenged those including Bank of England Governor Mark Carney who say London would lose its pre-eminence as a financial center in the event of a Brexit. The City, as the financial district is known, has found it hard to influence EU regulations in areas such as bonuses and will remain exposed to tensions between the euro area and non-euro countries if Britain stays in the bloc, he said.

“London is much more competitive than any other financial center in Europe, with its concentration of skills, knowledge and expertise,” Lyons wrote. “In fact, the biggest concern for many in the City is the high cost of housing in London.”

Carney says leaving the EU is the biggest danger to domestic financial stability and groups including the Organization for Economic Cooperation and Development, the International Monetary Fund and the World Bank have all warned of adverse consequences.

Even European Central Bank President Mario Draghi has chimed in, saying an interview with the German newspaper Bild published Wednesday that Britain should understand it would lose all the benefits of the single market.

International Opinion

“It’s important to look at the weight of economic opinion,” Prime Minister David Cameron’s spokeswoman, Helen Bower, told reporters in London Thursday. “We’re not just talking about Treasury analysis here. We’re looking at views and assessments made by some of the leading international economic institutions.”

The other economists backing the Brexit analysis are Kent Matthews, a professor at Cardiff University, Neil Mackinnon, a London-based strategist at VTB Capital Plc, part of Russia’s VTB Group, Warwick Lightfoot, a former special adviser to the Treasury, Ryan Bourne, head of public policy at the Institute of Economic Affairs, and Tim Congdon, a supporter of the U.K. Independence Party.

The forecasts were generated using the so-called Liverpool model, the basis of the Liverpool Macroeconomic Research forecasts carried out in the Julian Hodge Institute of Applied Economics at Cardiff Business School.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE