As the economic outlook outlines, leaving the EU would cause an economic shock. It will create a period of uncertainty. Consumers will retrench and consolidate income and expenditure as they watch and wait on the outcome of negotiation. The value of sterling will fall which, at the very least, means that prices will rise in line with the cost of imports.
A decision by Britain to leave the European Union would have profound consequences for the future of both the UK and the EU, The Economist Intelligence Unit has said in a report titled 'Out and down: Mapping the impact of Brexit'. Britain votes on June 23 whether to remain in the EU or leave it.
“We expect real GDP in the UK to be 6 per cent #
For retailers there will be further shocks. The supply chains and agreements that have evolved on an even playing field with partners in the EU will need to be revisited as the goal posts begin to move. Regulatory requirements relating to safety, quality and consumer protection that are currently consistent across member states will diverge. This will force retailers to consider two sets of rules when assessing their offering between the UK and Europe. Rather than cutting red tape Brexit could make the situation even more complex for retailers seeking to offer comparable services across countries. There are also mutually beneficial schemes that opting out of the EU will bring an end to and put British Retailers and suppliers at a competitive disadvantage. Opting out of the Common Agricultural Policy could affect agricultural supply chains for British farmers.
A Brexit will also impact on involvement in the single digital economy, which has particular ramifications for the UK's highly developed e-commerce sector which would enjoy a comparative advantage on an even playing field. All of these will add to the cost and complexity of doing business which will either be passed onto consumers or borne by retailers who may have to shed jobs or fall victim themselves.
In mitigation to those campaigning to leave, the alarmist language may be overblown. Just as frostier diplomacy is unlikely to lead us down a path to world war three, rising inflation on the back of a falling pound is unlikely to see prices skyrocketing in the way that they did during periods of hyperinflation in Zimbabwe or the Weimar Republic. Economic declines will be damaging but not cataclysmic for retail.
“We predict that if a referendum does result in the UK leaving the EU then there will be a short and relatively sharp retail shock, with sales volumes flattening out in 2016 before shrinking by around 3 per cent next year. Following this there will be a muted recovery while the terms of exit are finalised before sales flatline again in 2019 when departure becomes a reality. After this retail volumes in are expected resume a more stable growth trend by 2020, but the lost years will have set retail back, with nominal sales in 2020 likely to be about 6 per cent lower if the UK leaves when compared to the baseline scenario of remaining, “ The Economist said.
Those voting to leave may wish to do so for political or regulatory reasons but, despite the alarmist language used by the Remain campaign, the economic reasons to stay for retail far outweigh those to leave, The Economist concluded. (SH)
ALCHEMPro News Desk – India
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