Brexit Could End Up Costing 1.5% of GDP

The pound tumbled below $1.39 for the first time in seven years on Wednesday as analysts warned that a vote to quit the European Union would severely damage the UK’s growth prospects.

Sterling dropped to $1.3883 and also suffered against the euro after HSBC issued one of the starkest warnings yet of the dire consequences from a Brexit vote.

Analysts at the bank said sterling could lose another 20% of its value against the US dollar, pushing its value towards $1.10 – a level not seen since 1985 when the miners’ strike was in full swing.

A steep rise in the cost of imports following the currency’s collapse would send inflation spiralling, forcing the Bank of England to raise interest rates.

The analysts warned that the ensuing turmoil would knock 1.5 percentage points off GDP growth in 2017, losing almost all the 2.3% growth rate the Bank of England expects should the status quo be maintained.

“Our central case in the event of a vote for Brexit is that uncertainty grips the economy. This could take around 1.0-1.5 percentage points off the GDP growth rate by the second half of 2017. This would push our 2017 growth forecast, currently 2.3%, into the 0.8-1.3% range,” the analysts said.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza