Until recently it looked like the UK’s continued EU membership was a foregone conclusion, despite ongoing debate about cost. Now, after Conservatives promised a referendum on EU membership and UKIP garnered up to 34% of the vote in recent European elections, there is the slim yet distinct possibility that the UK could leave the EU.

The scenario has even got its own nickname in economic circles: Brexit.

What would happen to Britain’s economy if we left the EU? The impact on trade could be far-reaching, ultimately having a detrimental effect on the British stock market. As the majority of British investors choose to concentrate their holdings around UK companies, this could also significantly affect the portfolios of many British shareholders.

Impact on exports

Exports is one of the main focuses of those who support leaving the EU, such as prominent economist Roger Bootle. They believe that the UK is better off shedding the EU’s trade regulations, which would enable British businesses to develop free trading relationships with developing and Commonwealth countries, as well as North America.

As Britain currently has the sixth largest economy in the world, the argument goes that it would be in a strong position to renegotiate trading agreements, including the kind enjoyed by Norway and Switzerland with the EU. The idea is that this would boost trade and lower the cost of complying with EU regulation, improving the overall economy.

However, research from the Centre for European Reform (CER) think-tank on the potential consequences of Brexit shows that trade between the EU countries and the UK is 55% higher than would otherwise be expected, indicating that membership gives Britain significant trading advantages. Naturally, these would be reduced if Britain were to leave the EU, potentially creating a reduced level of exports, weakening the overall economy.

It also might not be as easy as some think to renegotiate trade treaties with the EU, despite our trade deficit. The CER points out that while the EU accounts for 50% of UK exports, only 10% of British imports come from the union.

This puts Britain in a weak overall position, especially as half of its EU trade surplus is with Germany and the Netherlands. While this would give the UK more negotiating leverage with one of the strongest individual economies in the EU, it would mean that the remaining 25 countries would have less incentive to agree to terms beneficial to the UK.

At a grass roots level 86% of CBI members think that leaving the EU would have negative consequences for British businesses wishing to access union markets.

Reduction of legislation

EU regulations are frequently criticised by members of the British business community, some of whom see them as pushing up their overall costs. Bootle believes that if UK businesses were freed from EU regulation it would drive up innovation and encourage entrepreneurship.

One of the main benefits of EU-wide trade legislation to British exporters is that they need to comply with just one set of legislation, rather than 28. If Britain left the EU and didn’t establish an EEA style agreement businesses could find themselves having to adhere to 28 different regulations, which could be both expensive and time-consuming.

If Britain joined the EEA after leaving the EU, according to the CER, it could even end up needing to comply with very similar regulations to the ones currently in place, although it would get fewer benefits.

According to the OECD, the UK is already one of the least regulated markets within the union and globally, with a more liberal environment than even the U.S. The OECD also says that the main issues hampering economic growth in the UK are poor educational attainment at secondary level, lack of public infrastructure and rigid planning laws, rather than regulatory obligations, none of which would be directly improved by leaving the EU.

Impact on GDP

Leaving the EU would cause British GDP to drop by somewhere between 1.13% and 9.3%, according to researchers at LSE. They ran static and dynamic quantitative models for best and worst case scenarios.

These models took into account the overall effect on our economy, looking at losses and gains from trade tariffs and barriers as well as financial gains. The results were clear: the impact on Brexit for the British economy could be worse than the 2008/9 financial crisis, when GDP declined by 7%.

The CER similarly came to conclusion that Britain’s economy gains by staying in the EU. This conclusion is reflected among business owners, as according to the CBI, 71% think that the EU has a positive effect on their business, while 59% believe that Brexit would diminish Britain’s ability to compete internationally.

For business owners and investors it seems clear that the Britain will be much better off maintaining EU membership.