LONDON (Reuters) - Britain’s large current account deficit could become harder to finance and sterling might slide if it votes to leave the European Union at a referendum in June, the Organisation for Economic Co-operation and Development said on Wednesday.
In the latest warning from an international body about the risks of a so-called Brexit, the OECD said Britain’s economy would suffer a “major negative shock” and be 3 percent smaller by 2020 if it left the EU than if it stayed in, rising to 5 percent by 2030.
The uncertainty about Britain’s economic prospects would raise the risk that the country would struggle to finance its large balance of payments shortfall, the OECD said in a report.
“A danger is that large capital outflows, or a break in inflows, might threaten the financing of the record-high current account deficit of 7 percent of GDP,” it said.
The financial shock would be magnified by the appreciation of other currencies against sterling, it said.
The pound weakened sharply in early 2016 on concerns about the June 23 referendum but it touched a 12-week high against the dollar on Wednesday on signs that the “In” campaign was gaining some momentum. However, opinion polls continue to point to a close outcome of the vote.
The OECD warned that impact of a Brexit would not just be felt in Britain.
“A UK exit (Brexit) would be a major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries,” it said.
The cost to the remaining members of the EU would be around 1 percentage point of gross domestic product by 2020, the report estimated.
The OECD said some of the hit to Britain’s economy could be offset if it managed to strike a trade deal with the EU similar to the agreement the bloc reached recently with Canada and which has been held up as a possible model by some “Out” campaigners.
“Yet, the costs of accessing the (EU’s) single market would still be higher than they are now after that time,” it said.
Additional reporting by Estelle Shirbon, editing by David Milliken