Research Team at HSBC, suggests that on 23 June 2016, at stake will be the UK’s relationship with its largest trading partner, the future growth of the City of London as a financial hub and the ability of workers to move freely between the UK and EU countries.
Key Quotes
“If the UK as a whole voted to leave but Scotland or Wales wanted to stay, the future of the UK could (once again) be called into question. It will be a momentous decision and a vote for Brexit would have potentially huge consequences for all asset classes. Following a vote to leave, we think uncertainty could grip the UK economy, triggering a potential slowdown in growth and a collapse in sterling. Specifically, we think:
• Sterling could fall 15-20% against the dollar – pushing it down to 1980s levels – and towards parity with the euro.
• This currency collapse could push inflation up by 5pp and raise import prices for firms.
• Growth could be 1-1.5pp lower, roughly halving our current 2017 growth forecast of 2.3%.
• Market uncertainty could be good for gilts, given their safe-haven status.
• Labour supply would shrink if some existing migrants returned home or restrictions on inflows were imposed.
• Sectors with a large proportion of non-British EU workers could face higher labour costs – notably in retail, construction, airlines and facilities management.
• In construction, where skills shortages already exist, costs could spiral and limit capacity to deliver on housebuilding and infrastructure targets.
• Uncertainty could hit UK bank stocks, although they should be relatively well placed to weather a growth slowdown.
• A reduction in passenger traffic might affect airlines and corporate structures might need to change if the UK left the single EU aviation market.
• Immigration raises trend growth and is needed to help close the public sector budget deficit: lower inflows could have long-term consequences.
• Over time, Brexit could be beneficial if it allowed the UK to ‘cherry pick’ immigrants from all over the world and forge new trading partnerships.
• Regardless of the outcome, the UK should remain a flexible and dynamic economy – the unknown is how economically destructive and drawn out the transition phase would be.”
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