Britain’s economy would get a “significant” boost if Brexit was reversed in a second EU referendum, a leading global think tank has suggested.
The Organisation for Economic Co-operation and Development (OECD) also warned that the UK’s growth would be hit hard if it quits the European Union without a trade deal.
In its latest assessment of the UK economy, the OECD projected growth of just 1% for 2018 and forecast that things would get even worse if a “disorderly Brexit” occurred and no deal was agreed with the 27-nation bloc.
The think tank pointed out that immigration had been a big boon to the UK labour market and predicted that a collapse in current Brexit talks with Brussels would lead to soaring prices, a plunging pound and business investment drying up.
To avoid such a scenario, the OECD suggested that a new referendum – or a change in Theresa May’s majority - would have a “positive” impact on growth if it led to Britain staying in the EU.
OECD chief Angel Gurria also risked a row with Tory MPs by appearing to compare the damage done by Brexit to the London Blitz in World War Two.
“In case Brexit gets reversed by political decision (change of majority, new referendum, etc), the positive impact on growth would be significant,” the think tank said.
Downing Street was swift to stamp on the suggestion, with the Prime Minister’s official spokesman saying the idea of a re-run of the referendum was “absolutely” not on the cards.
A Government spokesman added: “There will not be a second referendum. We are working to protect British jobs and the economy.”
Chancellor Philip Hammond also said “the Government is clear we are leaving the European Union”, but was careful to add his own warning against a ‘no deal’ Brexit.
“We know that delivering a time limited transition period, avoiding a disruptive cliff-edge exit from the EU we can provide greater certainty for businesses. That certainty will support the investment that will drive the productivity gains of the future,” Hammond said.
The OECD had a stark warning of the damage to UK jobs and growth if the country ended up on World Trade Organisation (WTO) trade tariffs rather than a close trade deal with the EU.
“A break-up of EU-UK negotiations, cancelling out the prospect of a trading relationship in the foreseeable future, would trigger an adverse reaction of financial markets, pushing the exchange rate to new lows and leading to sovereign rating downgrades.
“Business investment would seize up, and heightened price pressures would choke off private consumption. The current account deficit could be harder to finance, although its size would likely be reduced.”
OECD secretary general Angel Gurria, who unveiled his report alongside Hammond in London on Tuesday, said “it will be crucial the EU and the UK maintain the closest economic relationship possible” in future.
Gurria said the OECD wanted an exit that was “as seamless and smooth as possible” but pointed out that the UK had benefited from its close trade ties with the rest of the EU.
He also claimed that the British wartime phrase “Keep Calm And Carry On” was apt for the approach to Brexit, adding Winston Churchill’s resolve in the Blitz was a model for today.
Asked if the PM felt such a comparison was appropriate, a spokesman for the Theresa May replied: “No.”
He even hinted that EU migration should continue. “On the question of the closest economic relationship possible, it applies to goods and services but also to the movement of labour - from which has benefited the UK so much.”
To offset some of the damage, the OECD urged Hammond to spend spare funds on identifying ways to improve productivity, which measures the output per hour of an individual worker, by enhancing the skills of low-income workers.
A Treasury spokesman said: “Increasing productivity is a key priority for this government, so that we can build on our record employment levels and improve people’s quality of life.
“Today, the OECD has recognised the importance of our £23bn national productivity investment fund which will improve our country’s infrastructure, increase research and development and build more houses. In addition, our reforms to technical education and our ambitious industrial strategy will also help to deliver an economy that works for everyone.”
Liberal Democrat Deputy Leader Jo Swinson said: “This is a significant intervention the government cannot afford to ignore. The case for protecting the economy by reversing Brexit is getting stronger by the day.”