Wednesday 6 April 2016 1:42 pm

EU referendum: Latest Brexit doomsday forecast suggests GDP growth will halve, an investment drought and sterling crash

Brexit could compromise the City of London’s position as Europe’s top financial services centre, cause massive swings in the value of sterling, a sharp jump in inflation and at least three years of economic turmoil according to a top analytics firm, in the latest attempt to paint a picture of Brexocalypse. 

With opinion polls all over the place and around one in five voters still undecided, its unclear whether we will ever find out just how bad life would be outside of the EU, but IHS Global have waded onto the crowded field of those predicting doomsday. It puts the chances of voting to leave on 23 June at “close to 40 per cent” and said if it does happen businesses will batten down the hatches, freeze investment and stop taking on new staff.

Read more: HSBC imagines life after Brexit. It isn't pretty.

“We believe there would be a significant hit to UK GDP growth prospects over the second half of 2016, in 2017 and most likely 2018 in the event of a vote to leave the EU,” said Howard Archer, chief European and UK economist at IHS global.

Even after the "significant hit", IHS still reckons the UK will continue to grow. Archer told City A.M. that GDP growth would fall from a projected two to 1.5 per cent this year, and potentially just 1.25 per cent in 2017.

“A vote to leave the EU would most likely result in a major hit to business confidence due to the heightened uncertainty, leading to reduced investment and employment plans. Sterling would be likely to fall sharply, leading to a substantial rise in consumer price inflation, thereby eroding consumers’ purchasing power,” Archer added.

IHS Global's GDP growth forecasts

  Remain   Leave
2016  2%    1.5%
2017 2.5% 1.25-1.5% 

The calculations were made at the beginning of March, but IHS said it did not expect last month's terrorist attacks in Brussels to have made Britain more likely to want to leave the EU.

Brexit would also lead to a "plague on both your houses" scenario, with Europe's economies faltering as trade with the UK stumbles and the continent witnesses a “large loss in trust in international business partners” and “dampening economic activity”.

Read more: Do MPs' backgrounds show how they'll vote in the referendum?

Even if Britain were to negotiate a swift new relationship with the rest of the EU, economists are forecasting at the very least a short-term dip in economic activity, despite the fact that all of them admit nobody knows what would happen after a "Leave" vote.

A report from Oxford Economics out yesterday said it expected the UK to “abandon the policy of free movement of labour” and “extend the points-based system that it currently uses for non-EU countries to include EU migrants” if it were outside of the EU.

Read more: Where is the most popular destination for EU workers moving overseas?

If the UK chose a “populist” policy to manage its borders, GDP could come in 1.1 per cent lower over the next fifteen years, it calculated, whereas even a “liberal” new approach would see the economy 0.2 per cent smaller by 2030 than it otherwise would have been.