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Brexit 'would have huge economic impact and spark turmoil in global markets'

Published 01/06/2016

The OECD issued grave warnings over the possible impact of the UK leaving the European Union
The OECD issued grave warnings over the possible impact of the UK leaving the European Union

Leaving the EU would have a "substantial" impact on the UK and global economy while also sparking turmoil in world stock markets, according to the OECD as it ramped up its warnings ahead of the referendum.

The Organisation for Economic Co-operation and Development (OECD) slashed its forecasts for the UK economy as it said Brexit fears have already "undermined" growth.

It added that Brexit would have significant impact on growth across Europe and rest of the world and trigger turbulence in financial markets.

In its latest economic outlook forecast, it said: "A decision to exit would result in considerable additional volatility in financial markets and an extended period of uncertainty about future policy developments, with substantial negative consequences for the United Kingdom, the European Union and the rest of the world."

The OECD cut its forecast for UK growth this year to 1.7%, down from 2.2% predicted in February.

But this assumes a vote to remain in the EU, and the OECD reiterated Brexit warnings for growth following a report in April which said it would cost British workers the equivalent of a month's pay by the end of the decade.

The OECD estimated in April that by 2020 GDP would be more than 3% down on what it would have been if Britain had remained in the EU - the equivalent of £2,200 per household at today's prices.

Under the OECD's "central scenario", by 2030 the loss of GDP would have risen to more than 5% - a loss of £3,200 per household.

The group's latest gloomy assessment also underlines its fears over the global economy, which it said would fail to see growth pick up this year, remaining at 3%, and only edge up slightly in 2017 to 3.3%.

" Eight years after the financial crisis, the recovery remains disappointingly weak," it said.

It added: " The forthcoming UK referendum on EU membership has already raised uncertainty, and an exit would depress growth in Europe and elsewhere substantially."

In the UK, the OECD said referendum uncertainty "has led to a significant slowdown in economic activity".

"Business investment has contracted as businesses have put their spending decisions on hold and hiring intentions have weakened."

It echoed recent warnings from the Bank of England over the impact on the value of the pound, as well as the potential for borrowing costs to rise amid a possible credit squeeze.

The OECD believes that if Britons vote to remain in the EU, growth will pick up in the second half of the year and rise to 2% in 2017.

The Bank of England recently revealed Brexit could tip the UK into a recession.

Policymakers at the Bank will give further insight on the UK economic outlook in this month's interest rate decision, which is due just a week before the June 23 vote.

Also due that week is a full Brexit analysis from the International Monetary Fund, which has provoked outrage among campaigners, given that the report is due potentially days away from the poll.

Chancellor George Osborne said the OECD report shows there would be "grim economic consequences of leaving the EU".

"The highly respected, independent OECD has significantly downgraded Britain's growth today because of uncertainty about the outcome of the referendum, and they are clear that is just a taste of worse to come if Britain leaves the EU," he added.

But shadow chancellor John McDonnell said the OECD's move to downgrade UK growth in 2016 "shows the absolute failure of the Chancellor's economic policy".

He said: "With the OECD forecasting a dramatic shock to the whole economy from a Tory Brexit, it's clear we can't risk failed Tory economic policy any more.

"We need a serious commitment from this Government to invest in infrastructure and housing, backed up by a real industrial strategy to place the economy on a sound foundation and build the hi-tech, high-wage economy of the future."

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