PM, minister warn of recession in wake of 'Brexit'

LONDON • Britain could sink into a year-long recession if it votes to leave the European Union, Finance Minister George Osborne said in his latest attempt to focus voters on the potential hit to the economy from an "Out" vote.

"The British people must ask themselves this question: Can we knowingly vote for a recession?" he said in a speech yesterday.

"Does Britain really want this DIY recession?" asked Prime Minister David Cameron, standing beside Mr Osborne at the event staged in a home handyman store in southern England.

With a month to go, opinion polls have shown voters are leaning towards an "In" decision on June 23, but pollsters say the vote is too close to call.

Mr Osborne and Mr Cameron, who are leading the "In" campaign, stressed the risks of a so-called "Brexit" for Britain's economy, forecasting lower living standards, a fall in house prices and higher shopping bills.

A new analysis by the Finance Ministry set out two post-Brexit scenarios. A milder "shock" scenario, based on Britain reaching a trade deal with the EU, would result in the economy being 3.6 per cent lower after two years than it would be if Britain stayed in the EU, the ministry said. Inflation would rise and house prices would be 10 per cent lower than under an "In" vote.

The economy would suffer a more severe shock if Britain left the EU's single market and defaulted to World Trade Organisation rules, raising barriers to trade. Under that scenario, the economy would be 6 per cent smaller within two years, inflation would rise more sharply and house prices would be 18 per cent lower, the report said.

The rival "Out" campaign dismissed the new analysis as politically motivated. "This Treasury document is not an honest assessment but a deeply biased view of the future and it should not be believed by anyone," said Mr Iain Duncan Smith, a former Cameron minister.

Supporters of a Brexit argue that Britain's economy would flourish outside the EU because it would be able to ditch rules imposed by the bloc and strike its own trade deals.

Meanwhile, Mr Cameron clashed with members of his own party on Sunday over claims that he would be powerless to stop Turkey from joining the EU. "We are not going to be able to have a say. I do not think that the EU is going to keep Turkey out," Ms Penny Mordaunt, a junior defence minister, told the BBC.

That prompted Mr Cameron to criticise Ms Mordaunt as "absolutely wrong" in an interview on ITV.

"Britain and every other country in the EU has a veto on another country joining. That is a fact," he said. "And the fact that the 'Leave' campaign is getting things as straightforward as this wrong I think should call into question the whole judgment in making the bigger argument about leaving the EU."

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 24, 2016, with the headline 'PM, minister warn of recession in wake of 'Brexit''. Print Edition | Subscribe