A political decision to reverse Brexit would have a “significant” positive impact on the UK economy, according to a leading global think-tank.
The Organisation for Economic Co-operation and Development (OECD) said growth could be boosted if a second referendum or “change of majority” were to cancel the decision to leave the European Union.
The latest survey by the Paris-based OECD projects economic growth of just 1% in next year.
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It sees the uncertainty surrounding Brexit negotiations as meaning that the UK is likely to be without a free-trade agreement with the EU by its official exit date in 2019.
The economy could be further hit in the case of a “disorderly Brexit” – if talks between the EU and UK are cut short – the OECD warned.
It said this would trigger a sharp financial market reaction, send the pound to new lows and lead to a downgrade in the UK’s credit rating.
“Business investment would seize up, and heightened price pressures would choke off inflation,” the OECD added.
The risk that Scotland and Northern Ireland could vote to stay in the EU would also have a major impact on the national economy, it said.
But the OECD said the risks could be avoided with a Brexit reversal.
It said: “In case Brexit gets reversed by political decision (change of majority, new referendum, etc), the positive impact on growth would be significant.”
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The report admitted that Brexit negotiations were hard to forecast and that they could prove “more favourable” than it had assumed.
But this would require “an ambitious EU-UK agreement and a transition period to allow for adjustment to the new agreement”.
“Meantime, however, uncertainty could hamper domestic and foreign investment more than projected and hurt consumption even more were the exchange rate to depreciate even further,” the report said.
OECD secretary-general Angel Gurria said: “The United Kingdom is facing challenging times, with Brexit creating serious economic uncertainties that could stifle growth for years to come.
“Maintaining the closest economic relationship with the European Union will be absolutely key, for the trade of goods and services as well as the movement of labour.”
Responding to the report, the UK Government said it was “working to achieve the best deal with the EU that protects jobs and the economy”.
“We are leaving the EU and there will not be a second referendum.”
Chancellor Philip Hammond said companies in Britain and the EU would benefit from the greater certainty provided by a time-limited Brexit transition period.
Labour’s shadow chancellor John McDonnell said the OECD was “fearful of what a Tory Brexit could mean for the UK economy”.
Source: Sky News