Belfast Telegraph

UK will stay in the European Union, to a global sigh of relief

By Philip Shaw

The very flippancy of the Brexit phrase belies the ramifications that a victorious leave vote may have on the UK, European and in turn global economies. It's only 11 short weeks to go before the most hotly-debated and crucial European referendum in over a generation is upon us.

The impacts a leave vote may have on the Irish economy have been well documented in recent months and with that in mind it may be worth keeping tabs on how we think the UK will manage the aftermath of such an event.

One obvious benefit for the UK (unlike Ireland) would be an even weaker pound, making UK exports instantly more competitive.

As a ballpark figure we would suggest that sterling could fall a further 10% from current levels, taking the benchmark €/£ rate towards the £0.90 mark.

The pound, however, is likely to remain volatile after a leave vote and direction will also depend on what sort of deal (eg on trade) the UK government sets out to achieve, how constructive/rancorous the talks are perceived to be and the general level of UK political uncertainty that is sure to follow.

There could also be wider effects on global markets.

Negative trade negotiations would not be good for the euro area certainty (even outside the Republic).

It is not impossible to envisage global risk assets being impacted on fears of global trade or currency wars.

Our central view is the remain vote will prevail to a global sigh of relief, sterling will rebound sharply and the squadrons of potential political and trade negotiators will be ordered to stand down.

  • Philip Shaw is chief economist at Investec London

Belfast Telegraph