Macroscope | How EU withdrawal could turn Britain into economic backwater

Britain's economic destiny hangs in the balance in the next few years. The country and the European Union remain on a collision course and, thanks to Prime Minister David Cameron's pledge for a public referendum on EU membership by 2017, a future British exit (Brexit) cannot be ruled out. A deepening gulf between Britain and Brussels and British voters' growing disenchantment towards Europe mean the chances of a messy divorce loom large.

The stakes are high. The fallout from an EU exit could wreak massive collateral damage on the British economy. Britain might not only end up marginalised outside Europe, but its growth prospects could be left badly scarred for decades to come.

The EU has done itself few favours in recent years. The spectacle of Europe's crisis-strewn economy and the image of the EU's bloated, over-regulating bureaucracy have alienated Britain's public opinion.

With the British economy basking in 3 per cent-plus growth right now, it is no surprise that British eurosceptics argue the moment has arrived for the country to break free. They contend that greater national sovereignty is the best passport to faster growth.

They would be wrong to think that way. Britain's economic fortunes are completely intertwined with Europe's, no matter whether the country is in or out of the EU. Mutual economic dependency is so strong that if Britain plugs for an EU opt-out, the damage to both economies would be extensive and long-lasting.

Business with Europe is important to Britain. Export earnings to EU countries are worth up to £240 billion (HK$3 trillion) and support more than four million jobs in Britain. With business with the EU possibly worth up to 10 per cent of Britain's output, withdrawal from the EU would pose serious risks for the country.