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How 'Brixit' Could Affect UK Business, Economy

Thursday, 16 May 2013 | 2:54 AM ET
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With the latest vote on U.K. membership of the European Union (EU) splitting the ruling Conservative party, U.K. business experts told CNBC what a U.K. exit from the EU - its biggest trading partner - would mean for the country's businesses and economy.

Eurosceptic members of the Conservative party expressed their frustration in a vote on Wednesday on why policy proposals introduced in the Queen's speech last week, in which the parliament's legislative agenda for the year is set out, did not include a promise of a referendum on Britain's EU membership.

(Read More: Thatcher's Finance Minister Backs 'Brixit' Calls)

A total of 130 MPs supported an amendment expressing regret that the EU referendum was left out of the government's agenda. Of those, 114 of the Conservatives' 305 members of parliament voted against Cameron, Reuters reported.

Phillip Souta, director of Business for New Europe, an independent coalition of business leaders which has called for positive reform in Europe, said the anti-Europe backbench revolt did not reflect the perspective of British businesses.

"What we really have to address is: if we were to leave would things magically improve?" Souta told CNBC Europe's "Squawk Box." "If you talk to small businesses their biggest problems are to do with planning, not the European Union," he added.

(Read More: EU Leaders Tell UK: Be Careful What You Wish For)

"We have to ask ourselves what the alternative to EU membership would be - It would mean [following the rules of] World Trade Organisation (WTO) membership – that would mean we have tariff and non-tariff barriers and we'd still have to follow those rules when exporting to the EU. That is, we would probably continue to use EU rules…but we would no longer have any influence over them," Souta said.

Euroskepticism has risen in prominence in the U.K. with the UK Independence Party (UKIP) which was once dismissed as an anti-Europe fringe party making major gains in local elections in May.

Meanwhile, opponents to a so-called "Brixit" have expressed concerns that the U.K. outside the EU, which accounts for 48 percent of total UK goods and services exports according to research by independent think tank Open Europe, would suffer economically.

An analyst at Open Europe told CNBC that some of the fears over what would happen to the U.K. on an exit had been "overstated."

"The problem is about the unpredictability [of a U.K.exit]," Swidlicki said. "The U.K. is bound to come to some form of arrangement were it leave the EU but equally there's no guarantee that the terms would be as favorable as they are now in the single market at the moment," analyst Pawel Swidlicki told CNBC on Thursday, adding that the U.K. had to ask itself whether its economy would improve if it was outside the Union.

(Read More: Prince Harry—UK Business Ambassador?)

"The economy is the prime factor in people's decisions when they come to vote but the longer term questions about the U.K's future in Europe, particularly with regard to the euro zone which is integrating closer together and is changing the rules of the game, none of that will go away," he said.

Michael Gallagher, director of research at IDEAGlobal, said that an exit would have a consequences for the pound and image of the country as a safe haven in terms of government bonds.

"From a market perspective this is a political rather than a market issue but…on an exit I think the gilt market is likely to sell off, you would see some portfolio reductions in the U.K. as well as a sterling selloff," Gallagher said.

Wednesday's vote was largely symbolic but showed that Cameron's party is increasingly split on EU membership. Cameron promised in January that he would legislate for an "in-out" referendum in 2017 if his party won another election in 2015 but members of his party are pushing for a vote to take place earlier.

-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

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