How would a Brexit affect the UK? Spanish economists give independent review

Times would get tougher for Europe, triggering a global recession that would spread to Britain, say financial gurus in Spain

SPANISH economists say the cost to the UK of leaving the EU could far outweigh the benefits, and that the worst of the problems it may face will be in the early years.

They do not agree a Brexit would be 'catastrophic' for the UK, but they all highly recommend voting to remain so as 'not to unnecessarily risk Britain's financial stability'.

Britain has recovered successfully from the global financial crisis and the 'Vote Leave' supporters believe breaking away from the EU – where many countries are still trapped in relative poverty, austerity and unemployment – would strengthen the UK's prospects, but experts consulted by various media in Spain say it would be silly for Britain to put its recent progress in jeopardy.

Investors put off by volatility

Leaving the 28-nation bloc, with its 508 million inhabitants and GDP of €14 trillion which represents 16% of the world's trade would cause 'volatility in financial markets' in the short to medium term, says Javier Flores of the analyst firm Asinver, because 'investors have no precedents to turn to' and uncertainty is the biggest enemy of the financial markets.

He is more optimistic about a post-Brexit UK than most, saying: “In the long term, the UK will carry on being a privileged EU trade partner.”

“The scaremongering news will settle down with time; the UK will not stop being just one other country and investments there will not change much, nor will trade conditions alter greatly,” says Guillermo García-Plata, secretary of the firm Acocex.

But reports have already shown that in the last 12 months alone, €48bn in British funds has been taken out and reinvested in more stable markets – particularly those linked to pensions, which could be at risk if investments fail to yield predicted returns due to an outflow of cash from the country – ever since David Cameron became prime minister for a second term of office and announced his commitment to go ahead with the In/Out referendum.

Trade tariffs and red tape would make UK exports 'less attractive'

Salvador Llaudes from the Royal Elcano Institute says the 'most beneficial' form of Brexit would be the famous 'Norway agreement', or EFTA (European Free Trade Association), which Switzerland and Iceland also belong to, since it would allow Britain to escape customs tariffs – but as this would mean the UK having to continue to contribute financially, not having a say in EU policy and being forced to accept free movement of people as well as goods as a condition, it would defeat the object of a Brexit and is not a popular option.

World Trade Organisation director-general in Spain, Roberto Azevedo, says there is no question that export and import tariffs would apply, increasing the costs of goods.

“The cost of living for the average Brit would go up, because although barely 6.6% of exports from the EU end up in the UK, around 51.4% of British exports go to the continent,” Azevedo explains.

British economists have put the UK's trade with Europe at nearly 40%.

“Britain would lose any advantages it gains from a Brexit through the cost of extra trade barriers and a fall in the Sterling,” adds Guillermo Rivas-Plata, “because British products would become less attractive if the same or similar ones could be purchased without trade tariffs elsewhere in the EU – also, deliveries would take longer, because customs inspections would apply, which would put buyers off even further.”

The Bank of England has predicted the Sterling will drop 'brusquely', by at least 6%, which would cause a ripple effect for other countries, and the Organisation for Economic Cooperation and Development (OECD), which covers nearly every country in the developed world and most of the emerging market countries, predicts a loss of 820,000 jobs in the UK.

This independent organisation says the GDP in the UK would fall by 3.6% upon Brexit, and up to 6% if Britain left the common market in order to only play by the rules of world trade – and it calculates the loss per household per year at around €3,000.

“A Brexit scenario would not benefit investors in Britain in the slightest,” says Salvador Llaudes.

“If the companies which have chosen the City of London to operate in Europe find themselves no longer in the EU, they may well consider leaving the country.”

JP Morgan and HSBC have already announced that they would move the bulk of their workforce to the continent, probably to Dublin or Frankfurt, whilst Britain's most iconic car manufacturer Rolls Royce has parked its investments until it knows the result of the referendum.

A study by Ipsos Mori shows that up to 78% of international firms consider a Brexit would harm their business, and the International Monetary Fund (FMI) says the City of London would be 'eroded'.

British debt 'less competitive' to buyers, forcing up interest rates

The analyst BlackRock has put numbers on it: 110,000 jobs would be lost in the City alone.

If a Brexit caused an exodus of investors, the British public debt would be less attractive to buyers, leading to dividends for those who buy bonds from the UK having to go up to compensate – which would cause a rise in interest rates.

“Public debt markets will always see competition between countries, and if an investor perceives a higher risk, it will demand a higher interest rate,” Javier Flores says.