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Brexit could drag the UK into recession, warns Aviva Investors


The UK economy is likely to dip into a recession if the country decides to leave the European Union, Aviva Investors’ chief executive Euan Munro has warned.

“We believe there would be a significant and negative knock-on effect on business sentiment, which would likely push the UK economy into recession towards the end of this year,” says Munro.

He says the consequences of a “No” vote “wouldn’t just be felt temporarily” but would lead to “a permanent reduction” in exports to the EU. Currently 50 per cent of the UK’s exports go to EU countries, representing around 15 per cent of GDP, he says.

He adds that foreign-direct investment into the UK would suffer and, as a result, unemployment would rise and the long-term growth potential for the country decline.

Munro adds the drop in foreign-direct investment could “shave 0.2 to 0.4 percentage points off growth”, although admits any estimates are speculative.

Munro says: “We think that should the UK vote for Brexit, the impact of increased uncertainty on business sentiment and the negative impact on sterling assets would be large enough to send the economy into recession in 2016.”

The chief executive warns businesses would delay and possibly abandon planned investments altogether in a Brexit scenario.

He says: “In the global financial crisis, the decline in business investment in the UK subtracted two per cent from GDP.

“While we would not expect as large a decline as that, we see it as entirely plausible that a fall in business investment could be enough to push the UK into recession by late 2016.”

Looking to the stockmarket, Munro adds that smaller companies are likely to be hit hardest, as they are most reliant on the domestic economy.

He says: “While the Bank of England would no doubt ease policy in response to any economic downturn, it seems unlikely this would prevent UK share prices from falling sharply.

“In particular, shares in smaller companies, which tend to rely more on the domestic economy, would probably underperform.”



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Odd isn’t it. Almost all major companies and the great majority of investors, not to mention the Governor of the Bank of England, the CBI, the London Stock exchange and goodness knows who else, think that BREXIT would be a disaster, yet the likes of Peter Hargreaves and Nigel Farage think otherwise. In know who I am listening to.

  2. Julian Stevens 4th April 2016 at 4:43 pm


  3. Haha. Interesting, isn`t it, how most of those “in situ” don`t want to rock the boat and talk about the merits of Brexit. I take the view that, with no axe to grind, Mervyn King`s unfettered opinion carries more weight and insight than the current incumbent who seems to enjoy predicting interest rates (badly).
    Mr Munro`s doctrine that “currently 50 per cent of the UK’s exports go to EU countries” shouldn`t go without comment either. While it is possible to reach 50% by only looking at trade in goods, this would conveniently exclude over 40% of all of the UK’s exports. The last time the proportion of exported goods AND services heading to the EU crossed the 50% line was in 2008. Since then, it’s fallen to 44.4% and, notably, is still falling.
    Another thing: goods exported to the EU don’t necessarily stay in the EU. The Rotterdam-Antwerp effect is a suggested phenomenon where trade with the Netherlands and Belgium is exaggerated by British goods being shipped into the ports of Rotterdam and Antwerp and then dispatched elsewhere in the world.
    Never mind: don`t let the facts ruin a good scare story.

  4. Actually the facts, if you care to be unbiased, rather show us up as very second rate. I find it odd that those who advocate leaving seem to ignore that we trail Europe and the rest of the world in so much. This is not supposition, but fact. (No Julian I don’t listen to myself, but look at the position as it is now – not what I may imagine it to be in the future). Just to take a mere 10 examples:
    a. Lowest state pension in OECD (34 Countries)
    b. Worst rates of cancer recovery in Europe
    c. Worst rate of child literacy and numeracy in the developed world
    d. Most obese in Europe
    e. Highest transport costs in Europe
    f. Worst productivity rate in G7
    g. Children in the UK are more likely to die before they reach their fifth birthday than in any other western European country except Malta. Almost five in every 1,000 children born in the UK die before the age of five. 3,000 children in the UK died before their first birthday in 2012. (Institute of Health Metrics and Evaluation (IHME)
    h. Highest overall debt in the World (Public & private including Private Finance Initiative, household debt and student debt – excluding mortgage,) Our Public Debt is now £1.5 trillion – this now approaches 90% of GDP. (ONS, DWP, HMRC, G20, OECD)
    i. Largest prison population in the EU
    j. British mothers sent home sooner after birth than any other developed country. British women are sent home after 36 hours compared with two days in the US and more than four days in France. (PLOS Medicine – Public Library of Science)
    And here’s one statistic to be really proud of:
    BRITAIN is the most tattooed nation in the world, with an estimated 20 million designs decorating our bodies and the number of parlours more than doubling in just three years.

    So if you want to précis the above into a sentence: We have fat, ignorant, tatooed kids, who don’t stand much of a chance if life – provided they manage to survive their 5th birthday.

    Perhaps instead of perpetually criticising our European neighbours, perhaps we might have something to learn from them so that we might actually improve. Odd isn’t it that we pride ourselves in doing so well and yet Sterling has depreciated 8% against the Euro over the last year (which is regarded as a failure – and maybe it is). Is this then a measure of our superiority?

  5. @ Harry – I for one am glad you raised the 10 examples above that you did. It has just provided concrete evidence to me that if we can achieve such “accolades” from being a member of the EU family for 40 years, then imagine how much better off we would be outside it. As a country we’d be free to make all our own choices (good or bad but they would be ours and only ours to make). Free from the bureaucratic crap that comes out of Brussels which does little to but help mainland Europe, rarely does it benefit the UK. Free to control our own borders (whether this will be effectively done or not is another story) but we could decide who gets in and who does not. Regardless of your views on immigration, it would be us who makes the decisions. We’d be free do trade deals with whomever we choose – I personally do not accept the scare stories going about that the whole export economy to EU would collapse. EU businesses do business with the UK because it is mutually beneficial to do so. This would hardly change if we were outside. We would be free to make our own rules for our own people without some twat in EU Parliament blocking it as it would give UK an advantage. The list goes on and on and on.
    Lets be very clear about one thing. The EU (or to be more specific Germany and France) don’t want a Brexit for one reason and one reason only. The ramifications could lead to others in the EU doing the same and their political dream could start to unwind. Would this necessarily be a bad thing? Probably not in my view. They do not want us to stay in EU for the love of the UK. It is all about power and control and the strong EU countries (both of them) do want anything to try to disrupt the status quo. Even though Greece is likely to default, if the stories about what the IMF is thinking are true. We will just be a quick second country to leave and this could maybe spark a few more “tremors”.
    Will there be a dip in GDP initially if Brexit occurs? Probably, but it will recover in the same way as it always has.
    Will it cost jobs – More than likely, but I don’t think it will cost anywhere near the number “club remain” claim – they are scaremongering. Will these jobs be replaced? Yes they will as new markets open up
    Will there be a dip in GDP if we stay in? Probably as China is going to affect us all anyway and probably more than a Brexit.
    Will Sterling be affected? Yes, for a time but again it will stabilise to normality as that is how markets work.
    Will we be worse off out than in? Not in my view and for the first decade if we are no worse off, Getting out will have been soooooo worth it. After that things will get better and better.

  6. Julian Stevens 5th April 2016 at 5:06 pm

    The people will decide, one way or the other. Labour promised a referendum but then reneged on that promise. No country can ever have the best stat’s on everything and just quoting a list of negatives hardly paints a balanced picture. I’m with Marty Y.

  7. So Julian – balance it – with current facts to show where we excel.

    Marty Y – your logic is so arcane that I fail to follow it. You blame these failures on our membership. Then how come the other European countries do better. It is in spite of the membership (and our constant railing against it) that drags us down. Perhaps if we were to adopt a more European approach we might actually start to compare with our peers.

  8. Dick Sprinkler 8th April 2016 at 8:30 am

    there is an awful lot of assumption here as usual and we all know what assumption is. By the way, I am in a very good position to comment (about Spain) ALL my Spanish friends HATE EU and would vote to leave if given the chance and I know many in France coupled with the result of the Netherlands vote on expansion (which the EU stated they will ignore), political interference in the democratic workings of Portugal, Italy and Greece and I suggest that the EU is more like a house of cards.

    The EU is a political wet dream (designed purely for politicians) and financial disaster generally – ask the real people of Europe and I wonder how long it would take to collapse.

    BTW, I like my European friends and they like me, doesnt mean to say that I need to become part of a federal Europe any more than they do.

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