‘Brexit’ concerns are getting pronounced

As time ticks for the UK’s June 23 referendum — to stay or exit the European Union — rival sides in Britain are making their strong cases, amid global concern over Brexit. While those campaigning to leave the EU say the country would be better off by focussing on new markets, those in favour of remaining in the bloc argue Britain can benefit from EU’s clout in global trade.
The ‘leave’ campaign believes the UK could prosper away from the EU as some European members do out of the bloc. But this claim is disputed by those seeking to stay, citing the huge investment and trade with the bloc that could be jeopardised if the UK walked away from the EU.
The controversy might be weighing on the economy. In the three months to February, the trade gap with EU countries widened to a record 23.8 billion pounds, the statistics office said, due to a 1.1 percent increase in imports and a 1.3 percent decrease in exports.
While Britain’s economy has shown consistent growth in recent years, uncertainty surrounding the UK’s June referendum on EU membership is impacting confidence. Markit Economics said that its surveys indicate expansion slowed to 0.4 percent in the first quarter from 0.6 percent.
In the worst case scenario, the economy would be 3.9 percent smaller by 2030 compared with staying in the bloc and 21.1 billion pounds of business investment would be lost, Oxford Economics said, adding that the best case scenario would see a loss of 0.1 percent in GDP.
The vote projections made so far look close, showing the contest will be very intense. UBS Wealth Management sees around a 30 percent chance of “Brexit”, while Citigroup puts the likelihood at 30 to 40 percent. Meanwhile, IHS sees 35 to 40 percent probability of a vote to leave. The Observer newspaper at the weekend put support for Britain to leave the EU at 43 percent, against 39 percent wanting to stay.
Those campaigning for staying in the EU are betting on huge turnout, hoping undecided group would be in their favour. But the Dutch referendum on Thursday in which voters opposed an EU pact with Ukraine, sent a message that anti-EU forces may be growing. This stance may not augur well with those campaigning for staying in the EU, as bolsters the Brexit.
Earlier, British Prime Minister David Cameron fixed the date for referendum after securing from his EU peers what he argued then were key changes to Britain’s membership terms, including taking back powers over social welfare and immigration from Brussels. But critics downplayed the EU concessions.
Though the voting is the UK’s domestic issue, it may have a global economic impact. International Monetary Fund chief Christine Lagarde said the possibility that Britain would vote to pull out from the EU poses risks for the already weak world economy. “The risk of Brexit is a worry because it’s uncertainty,” Lagarde pointed out. No doubt, the vote has raised concerns at a time when the world economy shows more signs of weakening.
Voting both ways in the referendum will stir divisions that could lead to early elections. Even if the ‘remain’ camp wins, slower growth and weaker inflation would push the first BOE rate increase back to early 2017, according to Morgan Stanley analysts. But ING analysts say if the UK votes against ‘Brexit’, the BOE could lift rates as soon as November.
There are factors that could sway voters at the last moment. They include a successful implementation of the deal between the EU and Turkey to stem migration flow. This would lower the likelihood of ‘Brexit’ even more than last month’s terror attacks in Brussels.