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Pound could drop by 20% if Britain votes to leave EU, think-tank warns

Published 10/05/2016

Brexit would lead to lower exports, higher domestic prices and lower wages, the NIESR said
Brexit would lead to lower exports, higher domestic prices and lower wages, the NIESR said

The pound could tumble by a fifth in the volatile aftermath of the UK leaving the European Union (EU), an economic think-tank has said.

The National Institute of Economic and Social Research (NIESR) said if Britain votes to leave the EU on June 23 "the current heightened levels of uncertainty are likely to persist, if not intensify, as the UK establishes its place outside the EU".

It said this would see sterling initially fall "by around 20%" and would in turn drive inflation by between 2% to 4% higher than it would be if the UK had stayed in the EU.

Over the long term Brexit would lead to lower exports, higher domestic prices and lower wages that would mean every person in the UK would be between £500 and £2,000 worse off a year by 2030, the body said.

NIESR said Brexit would reduce EU markets open to Britain, and would see trade tariffs for UK exports into the region rise by 5%.

Over the longer term the think-tank said UK gross domestic product would be between 1.5% to 3.7% lower by 2030 if it left the EU rather than if it stayed, depending on the nature of the trade deals Britain agrees.

It also forecasts that direct foreign investment into the UK would suffer and productivity would lower, which would see domestic consumption fall by between 2.4% and 9.2% by 2030, if Britain leaves the EU.

NIESR said "the UK's flexible labour markets would ensure that unemployment would not be perceptibly higher by 2030, but real wages would bear the brunt of the adjustment".

Meanwhile, support for remaining in the EU has fallen among business leaders, dropping from 60% to 54.1%, according to another survey today from the British Chambers of Commerce (BCC).

In its final poll before the referendum, the BCC also said the percentage of those wishing to leave has risen from 30% to 37% since the last survey was conducted in February.

Matthew Elliott, the chief executive of the Vote Leave campaign said: "The NIESR said we would have to rejoin the European Exchange Rate Mechanism and then claimed we would benefit if we scrapped the pound. Both of those recommendations would have resulted in disaster. They were wrong then and they are wrong now."

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