Australian High Commissioner to the UK Alexander Downer has warned Australia's $10 billion trade relationship with the UK will be wracked with "uncertainty" if Britain votes to leave the European Union (EU).

The former foreign minister said the upcoming referendum could lead to financial shocks and raise questions for Australian investors as it's unclear exactly what a 'Brexit' would look like.

"The word is uncertainty," Downer said. "If Britain was to leave the EU, there would just be a question mark about well what's going to happen? What happens next? What sort of arrangements?"

Echoing the government's official policy, Downer said Australia does not want to see "shocks to the global economy" at a time of "fragility" and a vote to leave would weaken the 28-member bloc that is home to 500 million people.


"You're taking it out of the EU so that will substantially weaken the EU so it will to some extent fragment the EU," he said. "We don't really see that in the interest of short-term stability and equally we think that there will be some economic consequence."

On Thursday, UK voters will face the biggest choice in a generation, when they vote on whether the UK should "remain" a member of the European Union or "leave".

The choice follows an election pledge made by Prime Minister David Cameron in 2013, while under pressure to let the public decide amid growing frustration with ballooning bureaucracy in the EU power base of Brussels.

The issue has dominated UK media for months with Mr Cameron and Chancellor George Osbourne leading the "remain" camp, based on economic arguments that leaving would mean job losses, spending cuts and tax rises.

This week, the campaign was stopped in its tracks by the tragic death of Labour MP Jo Cox, who was shot outside her constituency office by a man who allegedly yelled "Britain First". Her death prompted both sides to suspend their campaigns and drastically changed the tone of the debate that had reached fever pitch on both sides.

The Bank of England said the referendum is the "most significant risk" to financial forecasts in the near term.

It's unclear yet how the recent volatility and the death of Cox will impact on voters.

If a vote for Brexit does occur, it will set in motion two years of negotiations to extricate the UK from the EU, followed by new trade negotiations to replace the common market.

The UK is Australia's second largest source of foreign investment, responsible for total trade of more than $10 billion a year. It could also raise questions for businesses who use London as a launching pad into the rest of Europe, with much speculation that Dublin could receive a boost if the UK does leave.

Nobody knows at this point how the world would look like with the UK out of the EU... This alone creates an uncertainty that businesses don't wish to see.


"For Australian companies based in the UK, like the banks, there is a question mark about what that is going to mean for them because they operate from here into Europe," Downer said. "The Brexit campaign claims they could do this and claims they could do that, but the truth is we don't know the extent to which they'd be able to fulfil their aspirations."

United States:

Britain's departure from the European Union could send shock waves across the global economy and threaten more than a trillion dollars in investment and trade with the United States.

International policymakers are ramping up their warnings of the dangers of a British exit - popularly known as "Brexit" - from the political and economic alliance that has united Europe for the past four decades.

The decision carries hefty consequences for American businesses, which employ more than a million people in Britain. The United States is the largest single investor in Britain, and many firms consider it the gateway to free trade with the 28 nations that make up the European Union. Corporate America has been on the front lines of the campaign to keep the union together, with several of Wall Street's biggest names donating substantial sums to the effort.

Brexit would be "bad for the UK, it would be bad for Europe, it would be bad for the world, including the United States," Angel Gurria, head of the Organization for Economic Cooperation and Development, said in an interview.

"You already have enough uncertainty in the world today. We don't need more."

Financial markets are already starting to feel the tremors. Photo / Getty Images
Financial markets are already starting to feel the tremors. Photo / Getty Images

The International Monetary Fund on Friday issued one of the most dire forecasts to date, calling the impact of Britain's departure from the EU "negative and substantial."

The fund predicted Brexit could reduce economic growth by up to 5.6 per cent over the next three years in its worst-case scenario. The gloomy outlook is driven by an expected sharp decline in the pound and severe disruptions in trade as the nation is forced to renegotiate deals with countries across the continent, potentially on worse terms. The uncertainty could lead anxious consumers to curtail their spending and force businesses to consider moving their operations elsewhere to access the single European market.


Finland's finance minister dubbed Brexit a "Lehman Brothers moment," referring to the collapse of the US investment bank during the depths of the financial crisis in 2008. And in Washington, Federal Reserve Chair Janet L. Yellen said the threat of Brexit factored into its decision to remain cautious and keep its benchmark interest rate unchanged this week.

"They basically all say somewhat of the same thing," said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics. "Namely, that there is little doubt that the economics will be bad."

Financial markets are already starting to feel the tremors.

Britain's currency has fluctuated wildly, while London's major stock index plunged nearly 6 per cent in less than two weeks and flirted with its lowest level in four months. Skittish investors piled into the safe haven of government debt, and high demand pushed yields on the 10-year German bond into negative territory last week for the first time in history.

Overseas investment in Britain could fall, which could impoverish the economy. Even if companies with factories in Britain want to move, the huge cost this entails makes it a difficult choice.


In the United States, yields on comparable Treasury notes dropped to near-record lows not seen since 2012.

The challenges are coming at an already weak moment for Europe's economy - and that of the world. Europe is still recovering from the series of financial crises that have been roiling countries like Greece, Italy and others across the continent. Waves of refugees from the Middle East are spurring political and cultural unrest. And there are worries about the strength of the economies of its major trading partners, from China to the United States.

While financial markets would bear the brunt of the immediate impact of Brexit, the referendum raises deeper questions for businesses on both sides of the Atlantic.

If Britain votes to leave, it would spend at least two years working out the terms of its departure, with all signs pointing to an acrimonious negotiation. Britain would also need to procure trade agreements with countries around the world, including the United States, a process that could take years. Businesses say the protracted debate would leave them stuck in limbo.

"Nobody knows at this point how the world would look like with the UK out of the EU," said Emanuel Adam, head of policy and trade for the BritishAmerican Business, which represents companies in New York and London. "This alone creates an uncertainty that businesses don't wish to see."

Financial markets are already starting to feel the tremors. Photo / Getty Images
Financial markets are already starting to feel the tremors. Photo / Getty Images

The United States exported $56 billion worth of goods to Britain last year, but that number is dwarfed by the $588 billion in US investment there, in sectors ranging from banking to manufacturing to real estate. Likewise, Britain has plowed nearly half a trillion dollars into the United States and employs more than a million workers here. Those deep ties mean that trouble on one side of the Atlantic easily can migrate to the other shore.


Japanese companies with bases in Britain are becoming increasingly anxious over the referendum.

Their main concerns are over possible increases in costs caused by tariffs and appreciation of the yen against the euro. If British voters choose a Brexit, some company executives are saying they could be forced to review their production and sales strategies.

According to the Foreign Ministry, about 1,000 Japanese companies have bases in Britain. Many of the manufacturers among them are worried about tariffs.

Currently, exports from Britain to the rest of the EU are not subject to tariffs. If Britain leaves the union and the EU imposes duties on British-made goods, it would increase the price of these companies' products, making them less competitive with manufacturers based in other EU countries.

The effect on automakers, which manufacture large numbers of vehicles in Britain, could be particularly severe. Toyota's Burnaston factory in central Britain produces about 190,000 vehicles per year, including the compact Auris. Of this total, 75 per cent are shipped to other EU countries.

You already have enough uncertainty in the world today. We don't need more.


Nissan produces sport-utility vehicles and other automobiles at a factory in Britain, of which 80 per cent are sold throughout the EU, in addition to other countries. Nissan President Carlos Ghosn has expressed hope Britain will remain in the EU, saying it would be better for the company from the standpoints of employment, trade and cost.

Hitachi has received orders for 1,500 train carriages at a production base in Britain for its key railway business, and is seeking orders from all over the EU. "Maintaining a strongly unified EU and open market that includes Britain is good for the prosperity of Europe and for Hitachi's business," a company spokesperson said.

Britain leaving the union could accelerate the appreciation of the yen against the euro, increasing the prices of products exported from Japan to the EU. Adding tariffs to this would make sales in the EU even more challenging. Also, the free movement of people between Britain and the rest of the EU may stop, making it more difficult for companies with bases in Britain to find workers.

"Overseas investment in Britain could fall, which could impoverish the economy. Even if companies with factories in Britain want to move, the huge cost this entails makes it a difficult choice," Yasuhide Yajima of NLI Research Institute said.

Commonwealth citizens registered on the UK electoral role are eligible to vote in the referendum on June 23.

- with additional reporting from, Japan News.