Brexit risk is nearly 50%

There is a near 50 per cent chance Britain will vote to leave the EU this year, a decision that would inflict “significant economic damage” on the UK over the next decade, a leading investment bank has warned.

Analysts at Société Générale are placing 45 per cent probability on ‘Leave’ winning out in a referendum on Britain’s EU membership, set to take place this year, reports The Telegraph.

A decision in favour of Brexit would condemn the economy to at least 10 years of lower growth, wiping 0.5-1 per cent off annual GDP until 2026, said the French bank.

Although no formal date for the in/out referendum has been announced, a vote could take place as early as the summer following the conclusion of negotiations with Brussels in February, said Soc Gen.

“Financial markets seem to have taken little notice of this event,” said Patrick Legland, head of global research at the bank.

“There is a high risk that the UK could vote to leave the European Union with significant economic damages resulting from such a risk scenario,” said Mr Legland.

Soc Gen’s forecast comes as polls have narrowed significantly in recent months. A survey by Ipsos Mori and ICM placed the proportion of voters for ‘Leave’ at 41 per cent, compared to 42 per cent for ‘Remain’ in December.

However, a separate poll of polls shows the Remain camp holding a robust 10-point lead of 54 per cent, against 44 per cent for Leave, according to Matthew Goodwin, a fellow at the Chatham House think tank.

Soc Gen said the eurozone would also suffer “substantial” adverse effects if Britain left the EU, reducing the single currency’s GDP by 0.1-0.25 per cent over the next decade.

Although the analysis does not flesh out the precise causes of lower domestic growth, economists have warned of investors fleeing for the exits and causing a run on the pound the day after a Brexit vote.

In November, Bank of America warned clients a decision to exit the EU would trigger a sterling crisis and throw the financing of the the UK’s record current account deficit into jeopardy. Others have also cautioned against the higher inflation and near recession that could plague the economy in the immediate aftermath of a Brexit vote.

But despite the economic alarm bells, the Brexit debate has fallen down the list of threats faced by UK businesses in 2016, according to new research.

Only four out of 10 accountancy firms think the Brexit question will hinder their prospects this year, down from 50pc in 2015, when the debate emerged as the biggest challenge to firms in a survey carried out by the Institute of Chartered Accountants in England and Wales (ICAEW).

Instead, companies cited a growth slowdown in the UK as their main challenge in the coming 12 months.

More than two thirds – 68 per cent – feared lower economic growth, while more than half said a rise in interest rates would hamper their prospects.

Meanwhile, the proportion of firms reporting “little or no impact” from the EU fallout rose to 55 per cent, from 46 per cent of respondents at the end of 2014.

Only 2 per cent said the debate and a likely 2016 referendum would have a positive effect on their companies. The survey was carried out among 500 of the ICAEW’s members.

“Businesses are telling us that they are less concerned about the uncertainty of Britain remaining in the EU than they were a year ago,” said Stephen Ibbotson, director of business at the ICAEW.

Mr Ibbotson said the ambivalence was partly driven by firms remaining “in the dark” over the implications of the Government’s EU renegotiation package on their business.

“When the Brexit question hits the headlines again and businesses learn more about just what this entails, perhaps then we will see a difference in opinion,” he said.

Of the companies surveyed, exporters and the financial services sector reported the highest level of concern about Britain’s place in Europe.

However, even firms reliant on Europe for their sales thought the Brexit threat had receded. Just under half of exporters – 49 per cent – said they were concerned about the “British question” compared to 57 per cent last year.

Brussels has promised to consider four “baskets” of EU reforms demanded by Prime Minister David Cameron in his bid to rewrite the terms of the UK’s membership.

They include cutting red tape, a promise to end “ever closer union”, protecting British interests from eurozone integration, and limiting access to benefits for EU migrants.

But the renegotiation bid has stumbled as Mr Cameron has faced staunch opposition over his totemic demand to ban migrant workers from accessing in-work benefits for four years.

European officials are adamant Britain cannot violate the EU’s principles of non-discrimination against its citizens, and have warned that any welfare curbs should also apply to UK citizens.

The renegotiation deal is due to be settled when EU leaders meet in February. Should Britain vote to leave, the Government would be afforded a two-year period to negotiate trade deals and establish the new terms of its relationship with the bloc.