Better off in or out of the EU? This is the hot question being asked of us and other accountancy firms in Stockport and around the UK at the moment.
The latest position
It is clear the ‘out’ campaign has been strengthened by Michael Gove and Boris Johnson’s support. Conservative MPs appear to be split on the issue and the media have revealed their stance since the referendum was announced ranges from either ‘Cameron’s deal is not worth the paper it’s printed on’ to ‘PM’s Europe deal is great for Britain’. Several company bosses have supported the ‘in’ campaign both in the media and by writing to their employees about the negative effect on jobs should Britain leave the EU. The out campaign point out that the majority of company bosses haven’t supported the ‘in’ campaign.
Why might we be better off ‘in’?
- Leaving the EU could slow down the UK’s economic growth if immigration was reduced because two-thirds of the current GDP increases are the result of an increasing population. The view is that growth is needed to achieve Government debt reduction.
- The City of London’s contribution to the UK’s GDP could be badly affected by a Brexit.
- It would take time to negotiate new trade agreements so overseas trade could be damaged.
- Britain has been the EU’s primary destination for foreign investment, receiving $35bn in 2014 and leaving the EU could mean this figure would be far less if we weren’t in the EU.
- Leaving could initiate the break-up of the UK as leader of the SNP has already stated that an ‘out’ vote would trigger a second referendum on Scottish independence.
Why might we be better off ‘out’?
- Claims about the cost about EU membership vary widely with some saying it is as much as £55m per day that could be spent more effectively on other things.
- ‘Out’ supporters claim that deregulation and new free trade deals with some of the world’s fast growing economies could increase GDP by as much as 1.6%.
- Britain could still trade with Europe in the same way that Norway or Switzerland do.
- The Eurozone is not a robust economy as the ECB is still pursuing a policy of quantitative easing and continues to face high unemployment.
Implications
Stock markets favour certainty. Leaving the EU would create uncertainty but we operate in an uncertain world irrespective of whether we are in or out of the EU.
If Britain leaves the EU, it is likely that the value of sterling would fall but not necessarily for the long term. Conversely a weakened £ would actually make Britain’s goods and services cheaper and more attractive to foreign buyers. In the short term, the referendum will result in stock market volatility but again not necessarily for the long term.
Conclusions
Overall it seems that due to the referendum there will be short term uncertainty in the markets but it should be short-lived, as the vote is only around the corner. Leaving the EU would also create uncertainty for business but many people consider it truly inappropriate that the UK isn’t free to sign trade agreements with countries like India and China. In conclusion, there doesn’t seem to be a clear economic case for either staying in or going out of the EU. The most likely determining factors appear to be political issues, such as, immigration and whether the British people feel that sovereignty is important.
Whatever your view, you need to put 23 June in your diary! And one final thought, don’t rely on the polls to predict the outcome – not based on recent performance anyway!
