OECD slashes growth forecasts and says Brexit could spark panic in global economy

Jake Cordell
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The UK goes to the polls in 22 days to vote whether to remain or leave the European Union
The UK goes to the polls in 22 days to vote whether to remain or leave the European Union (Source: Getty)

The Organisation for Economic Development and Co-operation (OECD) has warned that a vote to leave the European Union would set off a chain reaction of market turmoil across the global economy.

The body said the "most immediate" risk facing the world economy was the prospect of Brexit as it slashed its growth forecasts for the UK amid referendum uncertainty.

"A UK vote to leave the EU would trigger negative economic effects on the UK, other European countries and the rest of the world.

"Brexit would lead to economic uncertainty and hinder trade growth, with global effects being even stronger if the British withdrawal from the EU triggers volatility in financial markets," the OECD said.

The OECD said in April that both the UK and the EU economies would grow slower after Brexit.

The OECD has previously said that Brexit could knock almost eight per cent off the UK's potential GDP in one of the most dire forecasts issued by any group. Today's report suggested GDP would be three percentage points lower by 2020 in the event of Brexit than it would be should the UK vote to stay.

The findings were dismissed by Leave campaigners, who pointed out that the OECD previously advocated the UK joining the euro.

"This is a flawed report, that makes assumptions which have been roundly dismissed by senior economists," said John Longworth, former head of the British Chambers of Commerce and now a senior figure in Vote Leave.

The OECD also cut its growth forecast for the UK this year to 1.7 per cent, from a prediction of 2.1 per cent made in February, warning that "growth has slowed ... productivity has been exceptionally weak" and the highest ever current account deficit on record is "increasingly vulnerabilities" in the UK economy.

Read more: John McDonnell attacks chancellor over OECD warning

George Osborne said the warning was "another wake up call of the grim consequences of leaving the EU and the single market."

The Brexit warning comes at a precarious time for the world economy, the OECD said, pointing to a "low-growth trap that will require more coordinated and comprehensive use of fiscal, monetary and structural policies to move to a higher growth path".

Read more: OECD twisting the figures over Brexit

Unveiling its latest economic outlook in Paris this morning, secretary-general Angel Gurria said: "Global growth is projected to continue to limp along at around 3 per cent this year, and to pick up only modestly in 2017.

"Moreover, this pick-up hinges on avoiding significant downside risks, such as Brexit and financial disruptions in emerging markets linked to high corporate debt and exchange rate risks."

The OECD reiterated calls made by other bodies such as the International Monetary Fund (IMF) and the European Central Bank (ECB) that kick-starting growth will require bold policy action. That includes an increase in public investment, and structural reforms to enhance flexibility in labour markets and ensure "robustness" in the financial markets.

Vote Leave are yet to respond to the OECD report.