The Governor of the Bank of England Mark Carney has warned of the potential impact of the uncertainty surrounding the EU referendum on business investment in the UK.
There is uncertainty about both the government's renegotiation with the EU and the vote itself.
More fundamentally, there is uncertainty about what a vote to leave the EU would actually mean. If Britain votes to leave the EU, what form will the UK's new relationship with the EU take? And what does this imply for the UK's relationship with the rest of the world?
There is no simple answer to this question. Nor is there a consensus among those who favour Brexit. Yet it is of great importance if voters are to make an informed choice. And it is equally pertinent for businesses that are making investment decisions now.
There are many models for a future relationship between the UK and the EU. The UK could adopt the Norwegian model based on membership of the European Economic Area, which would ensure continuing access to the single market. Alternatively, the UK could follow the more flexible Swiss model based on bilateral accords, which would only provide partial access to the single market. Or the UK could adopt any one of a number of other approaches, including an even looser model based on a new Free Trade Agreement with Europe.
When you stop to consider the implications for the UK of each there is, however, an inescapable conclusion. What is most beneficial politically, in terms of policy independence, is also the most damaging economically. This is the Brexit paradox.
If Britain opts for greater policy independence and takes its own approach to regulation then the UK must accept reduced access to the single market, damaging trade.
If instead Britain continues to accept EU regulation in order to preserve access to single market, then not only will the UK fail to gain policy flexibility, it will actually lose influence over EU regulation by no longer having a seat at the table when decisions are taken.
An FTA-based model could be the way to go if Britain wants to shift the focus of trade from Europe to the rest of the world. But the government would also need to renegotiate the stock of existing FTAs concluded by the EU which would no longer apply to the UK. Even if you accept that shifting the focus from Europe to the rest of the world is a step forward, the UK must first step backwards. Europe might be signing trade deals with the US and Japan, just as the UK is signing a withdrawal agreement from Europe.
A vote for Brexit would therefore mean several more years of negotiation, creating additional uncertainty for business. The first step would be to negotiate a withdrawal agreement. This could take up to two years, assuming an agreement can be reached, which is not assured. And then - depending on the model - various new accords, treaties and FTAs must be negotiated. This would be a bureaucratic feast.
There are undoubtedly both pros and cons from being in the EU. A proper evaluation of the merits of Brexit requires that voters know the alternative on offer. The Brexit paradox means there is no easy answer to the question of what should replace EU membership. Until there is an answer, however, by opting for Brexit Britain would be following an unclear path in search of an uncertain destination.
If businesses are worried about referendum uncertainty now, as Mark Carney suggests, this may only be a foretaste of greater uncertainty to come.Suggest a correction