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Britain should remain in the EU says OECD

LONDON: October 17, 2017. In its latest survey of the UK economy the OECD says the positive impact on growth "would be significant should Britain remain in the EU".

The tParis-based think-tank says a "disorderly Brexit" following a break-up of EU-UK negotiations, with no immediate prospect of a trading relationship, could trigger an adverse reaction on financial markets, push the foreign exchange rate to new lows and lead to sovereign debt rating downgrades.

This would lead to a business investment "seize up", rising prices, reduced private spending and increased pressure on financing the country's current account deficit.

Airbus  BombardierAt the same time the OECD says Scotland could vote to remain in the EU with another referendum, the Northern Ireland peace process could be threatened by a "hard border" with the Irish Republic, and the result would lead to "major negative economic impacts, hampering business and consumer confidence".

The OECD notes UK exports have not benefited significantly from a 20 percent fall in the value of Sterling since June 2016 and "the persistence of currency weakness could notably reflect financial market expectations about the longer-term cost for the UK economy of changes in its trading arrangements after Brexit."

The report explains that Britain's exports have a "low responsiveness" to exchange rate movements, due in part to increased participation in global value chains and a resultant high import content in exports: "This leads to a high pass-through of import prices into export prices, reducing scope for exporters to win market share following currency depreciation," it adds.

At the same time productivity gains have made no meaningful contribution to UK output performance since 2007, relying instead on higher employment and [more] hours worked per employee. Moreover, while the level of UK labor productivity is similar to the OECD average, it is about 20-25 percent lower than in the U.S, France and Germany.

"The United Kingdom is facing challenging times, with Brexit creating serious economic uncertainties that could stifle growth for years to come," said OECD secretary-general Ángel Gurría. "Maintaining the closest economic relationship with the European Union will be absolutely key, for the trade of goods and services as well as the movement of labor."

Last month the OECD projected the global economy would grow by 3.5 percent this year and 3.7 percent in 2018, with industrial production and trade picking up.

In the EU German GDP is forecast to grow 2.2 percent and 2.1 percent; France by 1.7 percent and 1.6 percent respectively; Italy 1.4 percent and a 1.2 percent; and Britain 1.6 percent in 2017 and just 1.0 percent next year. U.S. growth is estimated at 2.1 percent in 2017 and 2.4 percent in 2018.

(Pictured: Airbus has agreed to produce the Bombardier C Series aircraft from an Airbus assembly facility in Mobile, Alabama. The deal is expected to underwrite complex import and export supply chains linking existing facilities in Northern Ireland, Canada and the U.S.)

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