Brexit would be bad for growth, asset prices and the pound, says ING
If Britain were to leave the EU, the impact would be negative for growth, asset prices and sterling, ING said in a note Friday, as it pondered the consequences of a Brexit following the Conservatives’ UK election victory.
The Tories’ pledge means an EU referendum is likely to be held in mid 2017.
“Political and economic uncertainty is an unambiguous negative that we feel will be damaging to the UK growth story, particularly in the lead up to the referendum and the period just after the vote,” said ING.
Financial markets are going to be faced with a very long window of uncertainty over the implications for the economy and jobs, it said. “The clear fear is that this will hurt direct and portfolio investment flows even if a deal can eventually be agreed with the EU that leaves the trading relationship largely unchanged.”
ING noted that the UK has been a key recipient of Foreign Direct Investment over the past few years, receiving more than any other EU country. Should the UK leave the EU then this situation could change, which would be bad news for growth and jobs.
If the UK votes to exit the EU, it would be bad news for the pound and other UK asset prices, as it would plunge UK-EU relations into unknown territory, said ING.
“Business sentiment would be hit given that surveys suggest the corporate sector is largely supportive of EU membership, and could cause firms that had delayed investment and hiring plans to potentially abandon them.”
In addition, a ‘yes’ vote would probably lead the Bank of England to exercise caution and leave monetary policy relatively loose, prompting further falls in the pound.
“We suspect the Bank of England rate may be around 100-150 basis points lower than we have in our baseline forecast so we could see the policy rate at 1% in mid-2017 versus 2.5% if there was no referendum,” ING said.