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Osborne: Brexit would spark year-long recession

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The Treasury has warned a vote to leave the European Union would trigger a year-long recession and a 3.6 per cent decline in economic growth.

According to the BBC, Chancellor George Osborne says in a Treasury study the UK would suffer an “immediate and profound” economic shock of its own making in the event of a Brexit.

The Treasury’s two-year economic forecast of what would happen after a vote to leave the EU – assuming a bilateral trade agreement has been negotiated – also predicts inflation would rise and house prices would be impacted by 10 per cent.

The Treasury also predicts what the impact of the UK leaving the EU’s single market would be, with the UK defaulting to World Trade Organisation membership.

In that situation, the Treasury says two years after the EU vote gross domestic product would be 6 per cent lower, there would be an 18 per cent hit to house price growth, and an increase in inflation.

Osborne is expected to say today: “It’s only been eight years since Britain entered the deepest recession our country has seen since the Second World War. Every part of our country suffered.

“The British people have worked so hard to get our country back on track. Do we want to throw it all away?”

However, former Cabinet minister and Vote Leave campaigner Iain Duncan Smith told the BBC: “As Osborne has himself admitted, the reason he created the independent forecaster, the Office for Budget Responsibility, was because by 2010 the public simply did not believe the government’s own economic forecasts.”

He adds: “This Treasury document is not an honest assessment but a deeply biased view of the future and it should not be believed by anyone.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. And how long before the threats of ‘Fire, Flood and Pestilence’?

    Can we have some grown up debate please and some leadership on the ‘vision for the future’ rather than these scare stories based on ‘dodgy’ guesswork.

    On what have the Treasury based these guestimates, because that is all they are?

    As far as I can tell they are based on the Treasuries perception of what individuals in businesses and on their own account may do if there is a vote to leave. The Treasury has a less than perfect record on how the public react to changes. It is not implausible that individuals will start to be much more positive then the Treasury must be assuming!

  2. Iain Duncan Smith seems to think there isn’t even the risk of a recession as a direct result of Brexit. His optimism may turn out to be right. Forecasting is tricky. But denying the risk is simply not credible. Just look at the markets.

  3. Oh dear. Poor George and Dave are trying to rush out so-called Treasury analysis before Thursday (when it enters purdah) and are making a dog’s dinner in the process.

    If Mr Cameron were to cast his mind back to the day in September 1992 when he was standing skulking behind Norman Lamont, he will remember that we have heard these dire warnings before but oddly, after a few days of turbulence on the foreign exchange markets following our exit from the ERM, things then went astonishingly well for a decade.

    Short-term fluctuations in exchange rates occur for all sorts of reasons. Long term through exchange rates tend to purchasing power parity between currency zones rather than being determined by the short-term speculation.

    GDP on the other hand is primarily a function domestic money supply growth and the state of one’s supply-side. (And house prices are a function of domestic monetary conditions and the tendency to restrict supply through onerous planning laws).

    Any elementary economic analysis will tell you this is all just piffle.

  4. At the risk of sounding thick…… So what? A year long recession in the big scheme of things is two things. 1) a very short time to suffer a bit of pain and 2) a very short sighted view of the Government that in my view is starting to come from desperation. We are talking about the rest of time, given that should we leave it will be for ever. Even if, for some reason, in decades to come we wanted to come back in, it is unlikely we would be accepted. If we were accepted it would be on European terms with full integration and the Euro et al. So if we leave it is permanent, hence “What is a year’s worth of pain?” We will have future recessions (as per the normal run of things anyway) even if we stay in – that is about the only certainty about the whole debate.

  5. James Hurdman 23rd May 2016 at 1:34 pm

    What about the “immediate and profound” democratic improvement?

    As for house prices, they are over-inflated already anyway. I am sure that several million 20 to 40 somethings would welcome a fall in house prices so that they can buy a home.

  6. Julian Stevens 23rd May 2016 at 1:40 pm

    Should we vote to stay, C & O have made it pretty clear we’ll never be given another chance to vote on the issue so whichever way the vote goes the outcome will be permanent. A once in a lifetime opportunity to free ourselves from the shackles of Brussels and Strasbourg. Let’s go for it and to hell with a bit of short term turmoil. Others will follow ~ that’s what Germany and France are really frightened of.

  7. Sure you can’t foretell the future, but look what a potential Brexit has given us already. We no longer have a credible political party capable of governing. The Tories are tearing themselves to pieces and Labour – well chose your own description.

    The Like of Goldman Sachs and the inheritors of George Soros are waiting in the wings to short Sterling and anything else they see as likely.

    To blithely presume that all will be hunky-dory if we leave looks rather more than cock eyed optimism.

    In see from Julian’s post that he, like so many others assumes that Germany & France run the show. Maybe they do and maybe they don’t, but that is entirely our fault. We have always been reluctant members – sending MEPs who are devotees of UKIP. Rather like joining the golf club and trying to get them to play football. Perhaps if we would engage enthusiastically we would be one of the leaders of the group.

  8. Time for an analogy I think!
    Back in 1998 when I decided to leave the accountancy firm with whom I was an ‘appointed rep’ & become an IFA in my own right, I was asked by the managing partner “but what will you do, how will you survive?”.
    Eighteen months later, earned revenues were twice the scale of of ‘being IN’ and have continued to grow.
    Despite leaving the ‘comfort’ of an umbrella firm (and the costs/contributions), the big wide world was indeed there for an innovative dynamic business plan. This (IMHO) translates well to UK plc, with it’s long history of forging trading links & furnishing trading partners with innovative dynamic business solutions.
    To the oft heard cry “but we have no industry of our own”, yes we do, AND we can establish new less strangled industry bases for a world hungry for a return to ‘doing business’ as business SHOULD be done!

  9. Time to stand on our own two feet again, to long we have been arm chair critics, to bone bloody idle to even go and put the bloody kettle on.

  10. @Derek Frost

    I’m glad that things worked out well for you, but your analogy presumes that UL plc is as good and enterprising as you are. I’m afraid this is far from the case. Germany sells more to our ‘beloved’ Commonwealth than we do – and we are supposed to have a special standing with them.

    When we tendered to sell jet fighters to India (to whom we give not insignificant amounts of foreign aid), what did the buy? French fighters. What significant industries do we have? Our car plans are all owned by foreigners and do stand the risk of being uprooted if we Brexit. It saddens me, as I am an symptomatic. I was in industry, I produced products. The firm won an export award; we exported widely. So what happened? We sold the firm and I became a parasite like us all in financial services. Just rearranging other people’s money instead of producing any concrete wealth.

    It was only until we were members of the EU and allowed in workers from the EU that we began to loose our awful reputation as the joke in Europe: striking every Tuesday, never producing anything on time and with constant quality issues. It has been the EU that made us pull up our bootstraps. When we leave it is highly likely that we will revert to type.

  11. Typo UL = UK

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