Leaving the EU is far from a straightforward process and we still do not know the form this will take.

 

UK politicians, advisers and policymakers will have to balance the perceived benefit of continuing access to the Single Market (e.g. through the European Economic Area or the ‘Swiss model’) with complete freedom from EU regulations and budgetary contributions.

 

The vote to Leave could yet have significant knock-on consequences for the United Kingdom itself and for the EU. Scotland could now call for a second Referendum to exit the Union.

 

Meanwhile other EU countries, which will remain important trading partners, may call their own referenda with the departure of the EU’s second largest economy and add to the sense of uncertainty.

 

The first task of the government will be to trigger Article 50 and formally declare the UK’s intention to Leave; if this is passed by Parliament, there will then start a long period of negotiation of the exit package.

 

In parallel, government will need to re-create the capacity to re-negotiate its trade agreements in place of the EU’s existing bilateral trade deals (of which there are 53). This will take time. The UK has not single-handedly negotiated a trade deal in the past 40 years and government will need to build capacity and capability.

 

There is no definitive evidence on the economic impact of exiting the EU on the UK economy. But the PwC report commissioned by the CBI suggests a decision to leave the EU could mean that total UK GDP in 2030 would be around 1.2%-3.5% lower than if we remain in the EU (subject to the trade agreements the UK could negotiate outside the EU), primarily due to the uncertainty which dampens confidence and investment. If this impact is realised, there will be a need to re-visit fiscal plans and consider how much of the funds returned from the EU are needed to help repair the public finances.

 

The UK is by far the biggest recipient of foreign investment in the EU. Almost half (46% in 2013) of the FDI stock in the UK originates from the EU. The future of this is now uncertain.

 

The position of London as Europe’s biggest international financial centre is unlikely to change overnight. However, the loss of EU market access via pass porting would have a significant impact on the UK financial services sector and the associated tax revenues. Moreover, if some of the above issues materialise then critical mass in the industry could be gradually lost, harming its current status.

 

Brexit is a process that will take years (between 2 and 10), not a single act. The levels of integration have gone so far that a UK departure will have profound legal, economic, social and political implications irrespective of the type of agreement reached. 

 

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