EU referendum uncertainty looms

EU referendum uncertainty looms

The government’s plan to hold a referendum on the UK’s EU membership will have a negative impact on foreign investment in the UK, a report from EY (formerly Ernst & Young) has shown.

The 2015 UK attractiveness survey, which was conducted among 400 investors, shows confidence in the UK remains high, ranking fourth globally – behind the US, China and India – when investors were asked to name their first choice investment destination.

But with the UK government committed to a referendum on the future of the UK’s membership of the European Union, this perception could change.

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The Chart shows results of the latest YouGov poll with 55 per cent in favour of the UK remaining a member of the EU.

Uncertainty over the outcome is creating concern among business leaders who feel investments will suffer, leading to a slowdown in the economy. However, some strategists feel with the changing landscape of Europe, it is difficult for the UK to remain in the EU on the same terms as before.

“The question of Britain’s continued membership in the EU was always going to be on the agenda in the years to come, regardless of what happened in the election,” said Stephanie Flanders, chief market strategist for Europe at JP Morgan Asset Management. “It is not obvious that a referendum held in 2016 or 2017 is more likely to end in a UK exit from the EU than one held in 2020 – or even 2025.”

In the EY survey, more than 72 per cent of investors believe access to the European single market is an important part of the UK’s attractiveness to investors. But with the government moving towards a referendum, 31 per cent of investors said they will either freeze or reduce investments until the outcome is known.

“There could be a short-term hit to investment in the immediate run-up to the vote, especially if the polls appear to be narrowing,” Ms Flanders said.

“But it is striking that this recent period of great political uncertainty over Scotland and the general election has also been the period that UK business investment and confidence has finally picked up steam. The referendum matters, but broader global forces may well matter more.”