Capital Economics Chair: Brexit Would Hit EU More Than UK


June 2016

Capital Economics Chair: Brexit Would Hit EU More Than UK

Roger Bootle, the head of Capital Economics, and member of eight-strong group Economists for Brexit has said it is countries still in the EU, rather than the UK, that will take a hit following vote to leave.

Speaking at a Capital Economics conference this week, Bootle is reported as saying that the entire debate about the economic fallout of Brexit has been tainted by exaggerated claims on both sides.

He said: “We suspect that in fact the impact of Brexit has been much overdone by both sides in the debate and that the impact would be probably pretty close to zero compared to what GDP would have been. It’s very difficult to say exactly which side of the zero line it would be.”

Those in the remain camp argue that leaving the European Single Market would hamper our ability to trade on the continent, and that renegotiations within the World Trade Organisation would be fraught with barriers. All of this, they argue, would lead to a drop in GDP, though they disagree as to the exact size and timeframe.

Bootle, on the other hand, argued that the impact has been overstated. Our share of exports that go to the EU have been falling for some time, he argued, and the import tariffs imposed on countries that are not members are not substantial enough to be truly worrying.

Further, he said, any impact would not be felt for at least two years – the timeframe given for the negotiation of exit terms, by which time our exports to the bloc would have continued to fall and any impact would be lessened still.

He also argued that it is incredibly unlikely that London will lose its position as a major financial city, given underlying strength that is not reliant on EU membership.

The real impact, Bootle argued, would be felt within the bloc following Britain’s exit.

“If the UK voted to leave,” he said, “all sorts of added pressures will fall on the other countries.” Other studies have also claimed that countries within Europe would feel the adverse effects of Brexit, but these claims were premised on GDP and productivity falling in the UK, and then this having an impact on other countries in a domino-like fashion.

Bootle’s arguments, not premised on any future economic issues within the UK, are more based in politics. He argues that reduced immigration to the UK would put further pressures on European nations.

He also said that “there will probably be calls to EU referendums in other EU countries”. Similar claims were made by the German Institute for Economic Research last Sunday.

Capital Economics have separately claimed that sterling is likely to drop in value, at least in the immediate aftermath of a vote to leave, but Bootle has repeatedly argued that beyond this, there is little that can truly be said about the economic result of Brexit.

And further, as Economists for Brexit have argued, if the pound were to fall in value, then the trade deficit that would be increased by added tariffs from the EU would be reduced again, levelling out the playing field somewhat.