Both UK and foreign businesses are likely to take a “wait and see” approach to hiring and investment, while consumer spending and confidence could weaken modestly. The Bank of England will sit on its hands and sterling is likely to continue softening in the build-up to the vote – touching 1.32 versus the USD.

 

Should the UK vote to leave, Brexit raises clear risks for trade and investment and, by implication, growth and jobs. 2017 GDP growth could slow to 1.5%, some 1.2% below what it might have been, EUR/GBP would likely move towards the 0.90 mark and the Bank of England might loosen monetary policy. This outcome could also fuel the campaign for Scottish independence, which would compound the effects.

 

The damage might prove short-lived. A trade deal would need to be agreed within two years and bilateral deals agreed with non-EU countries. Once the situation stabilises, growth prospects should improve – helped by a weaker currency and low interest rates, but the BoE may be forced to subsequently tighten policy aggressively to combat inflation risks. The UK’s prospects would then be driven by what the post-Brexit Conservative government tried to do with its new found “freedoms”.

 

The loss of the UK would negatively impact the EU’s own economy and runs the risk of boosting the campaigns of anti-establishment parties elsewhere. This suggests that the process of deeper European economic and political integration could reverse.

 

Full results