Chief executive of advertising giant WPP warns that 2017 referendum would make businesses less likely to invest
The threat of Britain leaving the European Union is one of the five major threats to the global economy as it struggles to emerge from financial crisis, recession and a half decade of weak growth, Sir Martin Sorrell, the chief executive of the advertising giant WPP, has said.
Speaking in Davos on Wednesday, Sorrell said there were a number of black and grey swans – “hidden or half-hidden risks” – that could derail an already tentative recovery, and that the promise of a 2017 referendum on the UK’s membership of the EU would make businesses less likely to invest.
“A referendum adds to uncertainty. It doesn’t diminish uncertainty”, Sorrell said at the World Economic Forum. “I understand the prime minister’s predicament. But a referendum creates more uncertainty and we don’t need that. This is a political decision not an economic decision. If I am looking at it from WPP it isn’t good news.”
He said Britain could “say no and move out at precisely the wrong time, when the tough measures being taken by the eurozone are bearing fruit”.
Other business leaders also expressed concerns about Britain leaving the EU. Peter Sands, the chief executive of Standard Chartered bank, told Bloomberg TV: “My feeling is that the UK needs to remain part of the EU. I completely understand why prime minister Cameron thought it necessary to offer the people a referendum. Europe is changing, and as the biggest country in Europe outside the eurozone the UK’s relationship with the eurozone is going to change. So I think it’s kind of inevitable that something like this had to happen.”
He added: “The European Union has been a massively important creation within Europe. It is very good for the UK to be part of it. It will evolve. We have seen that already in the eurozone. It is changing quite markedly. It is not a bad thing to have the evolution, debates and questions.”
Sands said he thought it unlikely a referendum would lead to the UK leaving the EU.
Sir Howard Davies, the former director general of the CBI and former chairman of the Financial Services Authority, said he understood why Cameron had made the referendum pledge but said he was wrong if he thought a vote would clear the air. “It’s not a ridiculous strategy. If Cameron said there would not be a referendum then the Conservative party wouldn’t tolerate it.”
The big picture, he said, was that Britain’s dysfunctional relationship with the EU would continue, partly because of its decision not to join the euro and partly because of its habit of holding piecemeal arguments over different elements of Europe rather than having a clear strategy. “A referendum won’t resolve anything. We will be semi-detached members of Europe whether we have the referendum or not.”
City economists said Cameron was adopting a risky strategy. Peter Dixon, the chief UK economist at Commerzbank, said: “The speech is more about politics than economics, as Mr Cameron is essentially reacting to domestic political issues. But by promising a referendum only by the first half of the next parliamentary term, economic and political uncertainty is set to rise considerably.”
James Goundry, the UK country analyst at IHS Global Insight, said: “Cameron’s promise to hold an ‘in-out’ EU referendum creates a significant amount of uncertainty amid a sluggish UK economy teetering on the edge of recession. Uncertainty over the UK’s future relationship with the EU risks limiting future foreign direct investment into the UK. Existing foreign investors in the UK could favour expanding operations elsewhere in Europe at the UK’s expense, or prioritise UK operations in any downsizing.”