“I do not love Brussels. I love Britain … Let me be clear. Leaving Europe would threaten our economic and our national security,” British Prime Minister David Cameron said after he called a June 23 referendum on the UK’s membership of the European Union.
Make no mistake, the “Brexit” (Britain exiting the EU) campaigners are gaining momentum. Not only do they have the backing of one of the UK’s most well-known politicians, London Mayor Boris Johnson, but the chances to leave the EU are increasing. A January 22-24 Ipsos MORI poll indicates 55% of the public would vote to stay in the EU, compared with 58% on December 12-14. With just 120 days to go for the call, the odds-implied probability of Brexit is 34%, according to Paddy Power Betfair betting exchange. At the same point in the runup to the independence referendum, the chances of Scotland leaving the UK were far more remote at 26%.
Britain’s possible exit of the 28-member bloc could leave a drastic and irreversible impact on many companies. About half the world’s largest financial-services firms, including HSBC, JPMorgan, BlackRock, Man Group, Aviva and Standard Life, have global or regional bases in the UK.
Financial services attract 30% of the inward foreign direct investment into the UK, equivalent to 17% of GDP. Nearly one-half of the FDI into the UK financial services sector comes from EU investors. Even if London would maintain its status as a global financial centre in the event of a Brexit, global firms could still consider other locations as bases for their European operations.
Standard & Poor’s, which currently rates the UK at the top AAA galaxy, has warned that a downgrade might follow the Brexit. While, the unpredictability of the referendum could grant the Bank of England more reasons not to raise interest rates; it has contributed to the pound’s over 3.5% drop against the dollar this year.
Mike Ashley, a fund manager at Pimco, estimates that the uncertainty following a vote to quit the EU could wipe as much as 1.5% off the UK’s GDP in the following 12 months; Credit Suisse reckons the damage could be as much as 2%.
That Bank of America, Goldman Sachs, JP Morgan and Morgan Stanley are all donating money to the group campaigning to keep Britain in the EU doesn’t quite come as a surprise.
Champions of EU membership point out that the bloc is the country’s largest export market, and that global companies locate in the UK because they can sell into other EU nations without tariffs. But Eurosceptics argue that the EU wants to grow into a super-state that impinges more on national sovereignty.
Estimating the economic impact of Britain leaving the EU is currently guesswork at best. Most polls suggest the in-or-out referendum could go either way. But Unilever chief Paul Polman sums up the mood in the financial world in a Guardian interview: “I personally think it would be very good if Britain could stay.”