The UK faces a year long recession if it leaves the European Union, according to a Treasury forecast issued as the government tries to persuade undecided voters that the risks of a so-called Brexit are too great.
The Treasury’s assessment of the short-term impacts of a vote to quit the bloc offers two possibilities.
Under its “shock scenario”, which it describes as “cautious”, Britain’s gross domestic product in 2018 would be 3.6 percentage points lower than the current forecast, which is for a 4.3 per cent increase.
Inflation would accelerate sharply and house prices would stall. Under the “severe shock” scenario, GDP would be 6 percentage points lower than otherwise, and house prices would fall about 10 per cent from current levels.
"With exactly one month to go to the referendum, the British people must ask themselves this question: can we knowingly vote for a recession?" chancellor of the exchequer George Osborne will say in a speech in southern England on Monday, according to his office.
“Does Britain really want this DIY recession?”
The chancellor will be flanked by prime minister David Cameron. With the Conservative Party split down the middle and both men's careers on the line, they are determined to emphasise the dangers of a vote to leave in the June 23rd referendum.
In an illustration of the party divisions, Cameron's former strategist, Steve Hilton, publicly supported the "Leave" campaign for the first time, calling the EU "arrogant" and "unaccountable".
“A decision to leave the EU is not without risk, but I believe it is the ideal and idealistic choice for our times,” Hilton wrote in the Daily Mail newspaper.
“Taking back power from arrogant, unaccountable, hubristic elites and putting it where it belongs. In people’s hands.”
Hit Jobs
Cameron said on Sunday the referendum matters more than a general election.
"The Europe vote is more important, because if you don't like the government, you can always get rid of them in five years' time," Cameron told ITV.
“If we make this decision to leave the EU, to get out of the single market and hit our economy and hit jobs, it would be very, very difficult, if not impossible, to reverse that decision.”
Extracts of the Treasury analysis already published suggest the pound would fall 12 per cent after a vote to leave, pushing up annual household shopping bills by £220 pounds (€285) over the same period.
In a BBC interview on Monday, business secretary Sajid Javid said the analysis also shows more than 500,000 jobs would be lost.
“It will make our country poorer, and we have to understand that if that’s how the country is going to vote,” Javid said.
“It’s up to the ‘Leave’ campaign to show what that positive scenario is.”
Those comments ignited the ire of former work and pensions secretary Iain Duncan Smith, who resigned from the government after a disagreement with Osborne over the annual budget.
He told BBC Radio he was “deeply disappointed” in Javid because he previously “privately said how much he wanted the UK to leave the European Union.”
Unfair and Biased
“They have today chosen only to produce the downside,” Duncan Smith said. “That makes this report categorically unfair and biased.”
The warning of recession echoes that given by Bank of England governor Mark Carney earlier this month.
Carney will testify to parliament’s treasury committee on the central bank’s inflation report on Tuesday.
The Treasury said its latest analysis was reviewed by former BOE deputy governor Charlie Bean.
The emphasis on risk is aimed at pushing undecided voters - who polls indicate make up as much as a quarter of the electorate - into the “Remain” camp.
Recent polling has suggested that the “Leave” side is losing ground. An Opinium poll published May 21st found “Remain” on 44 per cent and “Leave” on 40 per cent.
The poll was conducted online, something that has tended to produce better results for “Leave”.
Gambling website Betfair put the chance of Brexit at 22 per cent. The Number Cruncher Politics site has the probability at about 18 per cent, the lowest it’s been.
Retailers Warnings
The Treasury’s short-term forecast follows a long-term one last month which warned of decades of pain in the event of a Brexit.
“Prices would be higher, unemployment would be higher, growth would be affected, we would be less well off,” Cameron said on Sunday.
“You really have to ask yourself, is it worth taking this risk?”
The prime minister’s comments add to a plethora of personal economic arguments presented by the pro-EU camp in recent days.
Former chief executive officers of retailers Tesco, J Sainsbury, Marks and Spencer and BandQ said in the Mail on Sunday newspaper that Brexit would cause a spike in prices and job losses, while Osborne said on Saturday that a vote to leave the EU could also lead to higher mortgage rates.
