Britain risks year-long recession if it votes to leave EU

Finance minister George Osborne has warned the British public that leaving European Union could result in a recession. Photo / Getty Images

Britain could sink into a year-long recession if it votes to leave the European Union, finance minister George Osborne says in his latest attempt to focus voters on the potential hit to the economy from an "Out" vote.

"The British people must ask themselves this question: can we knowingly vote for a recession?" Osborne said in excerpts of a speech he is due to make on Monday which were released by the finance ministry. "Does Britain really want this DIY recession?"

With a month to go before Britons make their most important strategic decision in decades, recent opinion polls have shown voters are leaning towards an "In" decision on June 23, but pollsters say the outcome remains too close to call.

Osborne and Prime Minister David Cameron, who are leading the "In" campaign, have stressed the risks of a so-called Brexit for Britain's economy, forecasting lower living standards, a fall in house prices and higher shopping bills.

The new analysis by the finance ministry of the referendum's short-term implications for the economy set out two post-Brexit scenarios.

A milder "shock" scenario, based on Britain reaching a trade deal with the EU, would result in the economy being 3.6 per cent lower after two years than it would be if Britain stayed in the EU, the ministry said. Inflation would rise and house prices would be 10 per cent lower than under an "In" vote.

The economy would suffer a more severe shock if Britain left the EU's single market, as suggested by some leading "Out" campaigners, and defaulted to World Trade Organisation rules, which would raise barriers to trade.

Under that scenario, the economy would be 6 per cent smaller within two years than if Britain voted to stay in the EU, inflation would rise more sharply and house prices would be 18 per cent lower, the report said.

The rival "Out" campaign dismissed the new analysis as politically motivated.

"This Treasury document is not an honest assessment but a deeply biased view of the future and it should not be believed by anyone," said Iain Duncan Smith, a former senior minister in Cameron's Conservative government.

Supporters of a Brexit argue that Britain's economy would flourish outside the EU because it would be able to ditch rules imposed by the bloc and strike its own trade deals.

But they have run into a wall of warnings about the economic risks from bodies such as the International Monetary Fund and the Organisation for Economic Co-operation and Development. As a result, the "Out" camp has relied increasingly on its core message to voters that only leaving the EU can slow high levels of migration.

Does Britain really want this DIY recession?

Monday's forecast of a year-long recession by the finance ministry was gloomier than a warning by Bank of England governor Mark Carney who said earlier this month that Britain's economy could enter a technical recession - which means two consecutive calendar quarters of contraction - after a vote to leave the EU.

The Treasury said a vote to remain in the bloc would see current uncertainty fade rapidly with little lasting impact.

A previously published finance ministry report on the longer-term consequences of an "Out" vote estimated British households would be £4,300 (A$8,600) worse off by 2030 than if they voted to stay in the EU.

The ministry said its new report had been reviewed by Charlie Bean, a former deputy governor of the Bank of England.

- AAP.