On 23 June, a decision will be made on whether the United Kingdom should remain in the European Union or not. A ‘leave vote’ in the referendum is likely to lead to market volatility and in the view of one London Business School economist, could precipitate a sterling crisis.
Richard Portes, Professor of Economics
“Most economists agree that the short- and medium-term effects of Brexit on the UK economy would be negative: for the labour market (both high- and low-skill), exports and the financial sector. If the polls forecast Brexit, expect high volatility in bond markets and the exchange rate. And immediately after a Brexit vote, there could be a sterling crisis, with a reversal of the capital inflows that have been financing our record-high current account deficit. Over a longer horizon and in a broader view, what will Europe look like?”
Lucrezia Reichlin, Professor of Economics said: “The immediate economic effect of Brexit on the UK economy is uncertain but volatility is likely to prevail until the market settles – this would have short term negative effects on the UK recovery. However, the most interesting question is about the longer horizon: what Europe will look like if the UK exits and what would that imply for the future of the UK?
“Political and economic fragmentation is likely: a crisis of the euro and a move towards two-speed currency union, exit of Scotland from the UK, new status of London as a sort of state within a state. What will be the costs and the benefits and for whom?”
Andrew Scott, Professor of Economics commented: “The aftermath of a possible Brexit is clearly nothing but bad news for the economy. However, it’s hard to evaluate just how bad because we don’t even know what the negotiations would yield or how long the negotiation period would last.
“In the long run (and I mean the very, very long run) it’s hard to evaluate what’s best – it all depends on whether you think UK governments would be better than EU governments and the advantages of belonging to a wider economic area. Whether that’s true or not is a leap of faith and not really subject for economic analysis.
Analysis should try to focus on a possible ‘fix’ for how bad the hit would be in the immediate aftermath and understanding whether Brexit really does lead to an increase in economic sovereignty.”