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The Leave vote in the EU referendum could see a long term drop in GDP of up to 4% and years of economic uncertainty, according to London Business School economists. What impact does the vote have on the UK economy and what happens now? Our faculty share their views.

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LBS faculty comment on the implications of Brexit

AndrewLikierman1482x271 Andrew Likierman, former Dean & Professor of Management Practice in Accounting

 

“Speaking personally, I am concerned at the implications of the result for the UK. For Higher Education as a whole, and London Business School in particular, this should not give the signal that the UK has turned inwards. We are a global School and I believe that the UK will remain an outstandingly attractive place to study. We are also an agile institution and have witnessed a lot of changes over the last 50 years. While it is too early to know much of the detail of any of the deals the UK will secure, we will adapt and will continue to celebrate the richly diverse community for which we are known.”

 


 

RichardPortes Richard Portes, Professor of Economics

 

“The economy’s current account deficit is now 6-7%, financed by capital inflows likely to dry up or reverse. Short run risks include a real estate crash, at least in London, and an exchange rate crash. More than 50% of UK exports go to the EU. The fall in trade will hit exports and the dynamism of the economy.”

 


 

AndrewScott Andrew Scott, Professor of Economics

 

“Now is the time of total uncertainty – economic and political. The Leave campaign has won but its premise was entirely negative – to leave. What now? Who is in charge? Who leads the negotiations? What is the platform? Who do we negotiate with? Whatever the long term economic consequences of Leave the short term effects will be maximum uncertainty and punishingly negative. Political certainty needs to be achieved swiftly but the seismic political shocks may not allow this. We now enter EU purgatory – the status of everything is ill defined and this will be the hardest time. The UK has taken a leap into the dark. Dawn is still very far away.”

 


 

LindaYueh Linda Yueh, Adjunct Professor of Economics

 

“We now face at least two, likely more, years of uncertainty ahead as the UK renegotiates its place in the global economy. The top priority on the policy agenda should be to reiterate that monetary and fiscal policies are primed to help stabilise any volatility from that process, for example, the Bank of England and HM Treasury should stand ready to address any short-term shocks.”

 


 

MichaelJacobides Michael Jacobides, Associate Professor of Strategy and Entrepreneurship

 

“The process of renegotiating treaties will be a massive one, and much will depend on how it is conducted. The bigger risk, though, is with the EU itself. Rocked by the UK’s departure, it might see a wave of similar nationalism, which might translate into uncertainty and economic frictions – unless the UK’s failure acts as a disciplining mechanism, much as Greece’s woes helped soothe the growth of SYRIZA’s political brethren in Spain. This may be a turning point from an open, growing world to one drawn by fear and concern. A difficult few months lie ahead, which may shape the future of a generation and the geopolitical shape of the Western world.”

 

 Pre-referendum faculty comment  



Key points

  • Brexit would lead to an immediate period of uncertainty during which the whole country would lose, most likely significantly.
  • The longer-term impact of Brexit would depend on the trade agreements that are reached. Industries which directly benefit from being inside the EU, such as farming, would be clear losers.
  • It’s not obvious who would win in the event of Brexit other than industries which have tariffs that in some way protect the UK against imports for the European Union. Even then, consumers would lose at the expense of any gains from firms.




Key points

  • Under all scenarios we would lose access to the European single market at a cost to the economy estimated at between 1% and 6% in perpetuity – that’s a huge loss of real income to households.
  • The Bank would probably have to raise interest rates and we could end up with the worst of all possible worlds – raising inflation in the UK because the prices of our imports would go up.
  • The net balance of immigration for the UK has been absolutely positive; it has given us a big supply of people for the health service and the social services.




Key points

  • The economic impact of Brexit would be negative with a total effect on GDP of somewhere in the region of -3% and -10% by 2030.
  • Talk of the possible positive effects of deregulation are overstated as the UK is already much less regulated than most other market economies.
  • Brexit would most likely lead to a fragmentation of the EU which would have very negative consequences for the continent.







Key points

  • Effect of Brexit on international trade links between the UK and the EU would be serious for UK GDP.
  • Additional shocks, in particular uncertainty, would be very high. The effect of uncertainty shock is very bad for economic activity.
  • UK would have to re-centre its international trade agreement with the rest of the world including big emerging markets, countries such as China.




Key points

  • Leaving the EU would lead to a loss of trade which would have negative consequences.
  • The permanent effect of this would be at a magnitude of around -1 to -1.5% per annum, forever.
  • Economists are united in their view that Brexit would lead to negative economic consequences.




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