The 'Brexit' campaign that has been throttling the world economy for the past few months poses serious challenge to Britain’s economy, if the decision, pending on June 23 will vote-out Britain from the European Union.
The ongoing Brexit poll clearly shows a 50-50 chance of such an exit, although situation can change till the result date, mainly after Prime Minister David Cameron warned citizens of serious consequences, which can extend to the threat of causing a recession on the scale of the credit crunch. According to the latest EU referendum poll by BMG, 44 pct favored to 'remain', 45 pct voted for leave and remaining was inconclusive.
Cameron signaled that it is 'immoral' to quit the premises of EU, especially after the Treasury published dramatic analysis showing the economy would shrink by 1 pct in a single quarter if there is a 'leave' vote on June 23.
The Treasury document suggests the economy will be tipped into a recession by Brexit, with Gross Domestic Product (GDP) as much as 6 per cent lower than it would have been by 2018. The slump could cost as many as 820,000 jobs if the shock is 'severe', the assessment says. The 'central' forecast is for 520,000 and average wages to be 4 pct lower, reports said.
Adding to his warnings, Bank of England Governor Mark Carney, also nailed a risk of recession if the vote-out happens. Fund managers polled by BofA are already less enthusiastic about British equities than they have been for more than seven years. But the impact of Brexit on individual stocks will vary, however.
According to BlackRock, a fund-management group, more than 70 pct of FTSE 100 companies’ revenue comes from outside the UK. If it exits, equities and currency dull movements will not be a surprise to the world economy. International investors who hold gilts would lose out if a Leave vote led to a fall in sterling; they might be expected to demand a higher yield to compensate for that risk.
The BoE also highlights the risks associated with the 'Brexit' referendum. It says a 'Brexit' could extend the period of uncertainty, as well as raise perceptions of increased downside risks to the activity outlook. This in turn could cause companies to postpone investment projects and/or recruitment plans, whilst households defer some major spending plans, especially high-profile items.
BoE Gov Carney, in the accompanying press conference, says that the upcoming economic data are likely to be less informative than usual in light of the plebiscite, and so the MPC will react more gingerly than usual to the economic data.
“For now we think GBP remains vulnerable to the downside ahead of the referendum, the outcome of which is very difficult to call, although we favor the likelihood that the UK stays in,” mentioned a research note.
The central bank Governor is more concerned in adopting a suitable policy to avert a potential credit crunch, if any momentous decision is reached on June 23. However, EU officials have started confidential discussions to prepare for a possible Brexit vote in the UK's EU referendum next month, according to Reuters' sources.
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