Britain has voted to leave the European Union in a referendum that has sent tremors through financial markets around the world.
The historic decision triggered a plunge in the value of the pound and Prime Minister David Cameron’s resignation. The world’s fifth largest economy now faces uncharted waters, with a period of uncertainty ahead about growth, trade and investment prospects.
So what are the economic implications of the vote? There are still many unknowns. For one thing, it remains to be seen what sort of post-Brexit relationship the UK will have with the EU: a free-trade agreement set-up similar to Switzerland? Or what's referred to as the WTO scenario, where the UK and the EU revert to World Trade Organization rules, which would involve tariffs on goods sold between the two regions?
Here’s a roundup of quotes on what Brexit could mean for Britain’s economy.
The International Monetary Fund estimated that an EU exit could mean the UK misses out on up to 5.6% of GDP growth by 2019.
“In the adverse scenario of long negotiations and a default to the trade rules of the World Trade Organization, GDP plunges by 5.5% by 2019.”
Responding to the IMF’s predictions, Matthew Elliott, chief executive of Vote Leave said: “The IMF has chosen to ignore the positive benefits of leaving the EU and instead focused only on the supposed negatives. If we vote leave, we can create 300,000 jobs by doing trade deals with fast-growing economies across the globe.”
On the short and long-term prospects for the British economy, London-based economic research consultancy Capital Economics said: “The outcome clearly creates considerable short-term uncertainty which is likely to weigh on the UK economy in the coming quarters.
“Nonetheless, we maintain the view that the ultimate damage will be rather smaller than some of the more pessimistic projections have suggested. After all, the UK will remain inside the EU for at least two years and possibly longer.”
Speaking before the referendum, Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI), said that “leaving the EU would cause a serious shock to the UK economy, with a potential cost to UK GDP of £100 billion and 950,000 jobs by 2020 and negative echoes that could last many years after that.”
Leaving the EU puts Britain’s access to the EU’s barrier-free single market in jeopardy and means it will need to make new trade deals with countries around the world.
In April, US President Barack Obama urged Britons to stay in the EU, warning they would be at “the back of the queue” for a US trade deal.
“It’s fair to say that maybe some point down the line there might be a UK-US trade agreement but that's not going to happen anytime soon because our focus is negotiating with a big bloc, the European Union, to get a trade agreement done.
And the UK is going to be in the back of the queue, not because we don’t have a special relationship but because given the heavy lift on any trade agreement, us having access to a big market with a lot of countries rather than trying to do piecemeal trade agreements is hugely efficient.”
Writing in the Guardian ahead of the referendum, the UK’s European Commissioner, Jonathan Hill, argued that membership of the single market was in Britain’s best interests.
“On two points I am absolutely clear. There is no alternative for UK financial services that is as good as its current membership of the single market. And there would be no quick, simple, painless deal on offer from the rest of Europe after we left.”
But Boris Johnson, former London mayor and Leave campaigner, argues that leaving the EU would allow the UK to do trade deals with developing economies around the world.
“The EU goes at the pace of the slowest boat in the convoy and the UK's interests cannot be properly expressed by the Brussels Commission, which has total control of our trade policy.”
The City of London
The pound fell more than 10% against the dollar to levels last seen in 1985 over fears that leaving the EU could harm investment and threaten London's role as a global financial capital.
Mark Boleat, policy chairman for the City of London Corporation, the financial watchdog, said the vote would have “significant” implications for Britain, but that he did not believe there would be a mass exodus of banks and financial institutions.
“The general view of the City is that the government should push for the UK to retain our access to the single market.”
Mohamed El-Erian, adviser to Allianz and former co-chief executive of bond manager Pimco, outlines the risks to markets and the global economy:
“With markets having wrongly bet on a Remain win in the past few days, and with patchy liquidity sure to amplify price movements, there will be severe pain for levered long investors and, potentially, opportunities for cash-rich ones.
“Artificially-elevated financial markets were at the risk of either a policy disruption or a market accident. Brexit could well turn these two risks into reality.”
The Bank of England said it would take all measures necessary to secure monetary policy and help the UK economy move forward.
Mark Carney, Governor of the Bank of England, said in a statement: “A few months ago, the Bank judged that the risks around the referendum were the most significant, near-term domestic risks to financial stability.
“To mitigate them, the Bank of England has put in place extensive contingency plans.”
The UK could lose its AAA credit rating following the decision to leave. Moritz Kraemer, chief ratings officer for Standard and Poor's (S&P) said: “We think that an AAA-rating is untenable under the circumstances.”
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