Sterling could fall by 30% and the stock market by 20% if the UK should leave the European Union, according to a stark assessment from an award-winning team of independent economic analysts.
The warning comes amid growing anxiety on the financial markets about a possible Brexit, and as chancellor George Osborne prepares to address the annual gathering of City leaders at the lord mayor’s banquet on Thursday about the potential havoc.
On Friday sterling dropped by 1.6% as opinion polls suggested that Brexit was increasingly likely. The pound was subject earlier in the week to volatility unmatched since 2008’s financial crash.
In an analysis on his company’s website, Ian Harnett, the chief investment strategist at Absolute Strategy Research, who is a former chief European strategist at UBS, warns that the dangers are even greater than many imagine and than movements on markets have so far reflected. “The downside risk is probably 30% to sterling and another 20% to equities,” Harnett states. His research team is headed by David Bowers, the former chief global strategist at Merrill Lynch.
Harnett says that, while uncertainty and an appreciation of risk exist, the equity and bond markets have not yet adjusted to reflect this because of what he describes as complacency. Leading economic organisations, including the International Monetary Fund, the Organisation for Economic Co-operation and Development and the Bank of England, have all warned of severe economic shock from Brexit.
Now, in the run-up to the vote on 23 June, the remain side wants to focus more on the impact it will have not only on government finances and the tax intake but also on people’s household budgets, mortgages and the public services they use.
Two weeks ago a unique poll by Ipsos MORI for the Observer found that nine out of 10 of more than 600 economists working across academia, the City, industry, small businesses and the public sector believe that the economy will be harmed by Brexit.
A sharp fall in sterling would mean that imports would become more expensive, forcing up prices in the shops and leading to inflation. Economists believe that this could force the Bank to push up interest rates, resulting in higher mortgage payments for millions of householders.
Vote Leave has dismissed the warnings from experts as scare stories from EU-supporting organisations and claims that the economy will be stronger outside the union.
