Ian McConnell: Businesses seem confident Brexit will not happen but what if it does?

Read more: '82% of tourism firms' want UK to remain in EU

Discussions with people in the Scottish business community certainly give the impression that most would prefer to stay in the EU.

And most businessmen and women seem to be confident that, once all is said and done, common sense will prevail and the UK public will recognise the economic benefits of being in the EU and vote to remain in it. People in the business community appear not to be contemplating seriously that all might not be okay, when the people eventually vote in a referendum that some view as a huge political gamble by Prime Minister David Cameron.

It is certainly to be hoped their confidence proves to be justified. However, the most recent YouGov polls are not the only ones to have rung alarm bells over the potential for a vote to exit the EU. So we must therefore contemplate seriously the economic consequences, however unpalatable they might be, of a so-called Brexit.

The consequences seem pretty clear.

Surely the UK’s exports would tumble with any kind of dismantling of the crucial free trade arrangements we have with other EU nations? The EU contains some of the most important export markets in the world for companies in Scotland and elsewhere in the UK, including France, the Netherlands, and Germany. And what about all the work the EU does on behalf of the UK and its other member states in terms of trade relationships with countries outside the single market?

Overseas companies from outwith the EU often set up operations in the UK in large part because it gives them access to the huge European single market.

You would imagine the Republic of Ireland and other EU countries would therefore be big beneficiaries in terms of inward investment, at the UK’s expense, if there were a vote here to leave the free trade bloc. And the overseas corporations would only be doing what was eminently sensible by choosing to invest in a country that was in the EU, rather than one which was not.

Banking giant Citi, for its part, last Friday declared that the effects of Brexit, if it were to happen, “are likely to be large and painful in economic and political terms, both for the UK and the EU as a whole”.

It forecast that the pound would drop by between 15 and 20 per cent in trade-weighted terms against a basket of currencies if the UK were to exit the EU, putting upward pressure on inflation as imports became more expensive in sterling terms. This, Citi believes, would create a dilemma for the Bank of England’s Monetary Policy Committee, which has for nearly seven years now felt able to hold UK base rates at a record low of 0.5 per cent given the lack of inflationary pressures.

Citi warned: “The possible effects of Brexit are inevitably uncertain, but we suspect it would trigger significant economic weakness for the UK, with a 15 to 20 per cent depreciation of sterling in trade-weighted terms, resultant return to import-driven inflation and a major policy dilemma for the MPC. It would also likely prompt a wider wave of referendums and embolden other separatist movements within the EU.”

And Citi, meanwhile, highlighted a view that a vote for the UK to leave the EU could trigger another independence referendum in Scotland.

Citi said: “Brexit would cause a sizeable risk that Scotland would exit the UK, via another independence referendum, to stay in, or re-join, the EU … The Scottish electorate might well prefer the uncertainties of independence within the EU to uncertainties of Brexit.”

This is an interesting statement.

The investment bank said, as a “rough estimate” for a Brexit scenario, it would trim one to 1.5 percentage points off its year-on-year gross domestic product growth forecast for 2017, 2018, and 2019, equating to a total GDP loss of four per cent.

And we must not underestimate how painful a loss of four per cent of GDP would be, especially in the context of a UK economy that has been struggling for so many years now.

Investment bank Goldman Sachs also warned last week that sterling could fall by as much as 15 to 20 per cent in the event of a UK exit from the EU.

Not surprisingly, the Brexit risk has already been weighing on the pound.

And UK technology star ARM Holdings warned this week that Brexit would hamper its ability to employ the engineers and scientists it needs.

Its chief financial officer, Chris Kennedy, said: “Our main concern is the ability to attract talent and be able to get the necessary papers for them to work in the UK in the event of Brexit.”

This will presumably be a major issue for companies the length and breadth of the UK, including many in Scotland.

Scottish companies have for some time been warning of skills shortages in the likes of engineering, exacerbated by demographic factors with large proportions of workers reaching retirement age.

So the last thing that companies in Scotland or elsewhere in the UK need right now, as they aim to create wealth in already difficult economic circumstances, is the danger of having their talent pools restricted.

The Confederation of British Industry has this week flagged the risk that uncertainty created by the impending EU referendum could weigh on business investment. It said there was “little current evidence” of such an effect, but maybe this is because businesses generally believe Brexit is something that will never happen.

Citi said last Friday that it continued to put the probability of Brexit at around 20 per cent to 30 per cent, adding : “It is not our base case but by no means a trivial risk.”

The investment bank is right. It is far from being a trivial risk. And the consequences, should the risk crystallise, will be absolutely anything but trivial.