With the UK election getting close, it is becoming more and more obvious that the extremist UKIP party is doing the country more harm than good, especially from a business point of view.
On Tuesday, the head of the British Chamber of Commerce called for a referendum on EU membership to be brought forward to within 12 months of the May 7 election rather than two years, if the Conservatives win.
Two recent analyst reports highlight the level of concern in the markets about the possibility of a so-called “Brexit” –Britain leaving the European Union, pushed by UKIP.
While Nigel Farage, the party’s leader, seems to have refrained lately from making more racist comments against Eastern Europeans, he is as adamant as ever that the EU’s freedom of movement rules are bad for the UK and that the country must leave the bloc.
But reality contradicts Nigel Farage’s theory that migration is mainly sourced from the EU. Analysts at ING bank have taken a look at immigration statistics and discovered that despite popular beliefs – shaped by UKIP’s propaganda – the EU is not the main origin of immigration to Britain.
But facts do not matter that much for politicians. Farage’s UKIP has pushed its right-wing, sometimes xenophobic and always euro sceptic stance to the top of the political agenda.
One of the worst consequences of UKIP’s ascension is that it has hijacked the political debate, taking up valuable time with relatively trivial issues.
One example of this is Nigel Farage making headlines last year in December when he blamed immigration causing traffic jams on the motorway for cancelling an appearance at a meeting in Wales.
The party’s tactic is to blame immigration for shortcomings in more important areas too, such as the housing crisis, the inequality created by the Bank of England’s asset purchases, and the ever-increasing problem of household debt.
So high is the insecurity created among business people by this situation, that they list the May 7 election and uncertainty afterwards as their biggest worry.
A big problem highlighted by Societe Generale in a recent report is the fact that “UKIP seems to have tapped into a deep vein of discontent within the Conservative party, which could see many erstwhile Conservative supporters defect to UKIP.”
If this continues, it would weaken the Conservatives and push them to be even more radical, creating even more uncertainty due to possibly rising xenophobic rhetoric.
This does not bode well for a country with an open economy and host to the world’s second-largest financial centre, which has to be international to work.
The Societe Generale analysts assess the probability of an EU referendum at 25%.
A Brexit would be bad for the UK, they argue, because it would weigh down on growth as exports to the EU would slow, foreign direct investment into the UK would dwindle (Europe is the biggest investor) and depending on how big the disruption is, the UK’s credit rating could suffer another downgrade.
Analysts at ING bank point out that “if a referendum is called there will be two years of uncertainty ahead of the actual vote that may unsettle businesses and households.”
“As we saw with last year’s Scottish Independence vote, foreign investors may take fright, with UK asset prices and sterling likely to come under downward pressure. UK GDP growth in 2017 could be half a point lower, irrespective of the outcome of the vote,” they added.
Some observers, mostly in the euro sceptic camp, have praised UKIP for bringing the issue of a Brexit to the fore and forcing the Conservatives to promise an in/out EU referendum.
But as the election draws near it is becoming more and more obvious that an EU referendum is a bad idea because of the uncertainty it creates.
British voters may already see this, and they could turn the May 7 vote into the real referendum: those who want to stay in the EU will vote Labour, and those who want out, UKIP.
Ironically, for the Conservative-loving business sector right now a Labour vote looks like the best way out of the current mess.