The chances of Britain choosing to leave the European Union at the upcoming June referendum stand at between 35% and 40%, analysts at IHS Global Insight said on Wednesday (6 April). According to IHS, the most favourable outcome to a vote for the UK to exit the 28-country bloc would be a "soft" exit.
Under this scenario, the UK would manage to conduct "amicable and constructive" negotiations with the EU, which would result in full trade agreements and full UK access to the European Single Market (ESM). In the case of an amicable exit, the UK would be able attract highly skilled workers and could potentially adopt the same kind of points system as used by Australia, according to the UK In Or Out Of The EU: The Economic Considerations Report.
Meanwhile, a reduction in the number of less skilled workers coming into the country would have an upward impact on UK earnings, IHS added. However, the research firm warned this scenario would also hurt the UK's competitiveness by putting unit labour costs under real pressure.
"Should the UK decide to leave the EU, the outcome of the move is dependent on terms of the exit," said Howard Archer, chief European and UK economist for IHS Global Insight, and one of the authors of the report
"There would be a two-year time-frame from when the decision to leave was made and the exit actually taking place. One issue that would have a significant influence on how the UK economy fared over this period is how amicable, constructive and successful the UK's negotiations were with the EU."
However, should the UK fail to agree on an exit on amicable terms and leave the EU under what IHS describes as a "hard" exit scenario, meaning that a contentious and lengthy process would lie ahead. Britain would face an uphill struggle over the short and longer term and would find itself excluded from, or having limited access to, the European Stability Mechanism (ESM).
Having limited access to the ESM and struggling for trade agreements, would lead to significantly lower levels of new foreign direct investment into the EU, IHS warned. Meanwhile, the City of London's position would be compromised and it would almost certainly see investments redirected to Frankfurt and Paris.
In the event of a "hard" exit scenario, the UK's migration policy would result in a lack of incoming workers needed for lesser-skilled jobs, and the resultant reduced workforce would limit potential UK growth.
IHS added that any assessment of the economic implications of a UK exit from the EU on the remainder of the bloc must take into account the fact that political and economic consequences are closely related.
"What seems certain, however, is that the opening of such a Pandora's box would render any quick agreement between the EU and the UK on new trade regulations extremely unlikely," IHS analysts added.
"This would ensure a lengthy period of high uncertainty about counter-party risk that would significantly dampen international trade and investment activity within Europe for at least two years and probably longer."