UK leaving the European Union could shake the currency markets

Monday, 20 June 2016  Media Alerts

“It’s going to be an interesting and wild ride to the 23rd of June.” says Tim Harcourt, the J.W. Nevile Fellow in Economics at the UNSW Business School. “However, I think there’s unlikely to be an adverse impact to the British economy, if they vote to leave the European Union.”

The United Kingdom is to hold a referendum on whether to remain in the EU this week.

Tim Harcourt has looked at the economic implications, and says, “the view has been that the EU has distorted rather than created trade and the UK would do just fine with its major trading partners in and outside Europe, including Australia and New Zealand, without the EU straight jacket of protection and subsidies. Leaving the EU would allow the UK to focus on trade relations with successful economies away from Europe like Australia for instance.”

Investors in European bourses are becoming increasingly despondent as opinion polls suggest that support for the "Leave" campaign is gathering momentum. This is in stark contrast to the situation three weeks ago, when the "Remain" camp had a clear ascendancy.

“Norway and Switzerland have done fine outside the EU including as trading partner of Europe and I bet many economies wished they hadn’t ditched their own currencies signed up to the euro now,” he says.

Currency markets are responding more wildly with every fresh poll result. “The pound could fall 20 per cent if the UK votes to leave the EU on June 23rd,” he says, however the UK could retain some of the good things the EU has brought like progressive social and environmental standards, and UK citizens can still enjoy European culture, nice restaurants and holidays without a change.

However, if the leave vote takes the upper hand, the markets would have more than a plunge in Sterling to consider. “There would be maybe a quarter of a point being knocked off this year's UK GDP growth, if Britain votes to leave. However, remember when the UK left the EMU, the forerunner of the euro. Britain then had an economic boom lasting 20 years.”

He says, there is a non-economic big picture geo-political angle as well to consider. “UK support for the EU may be important in an uncertain world with Putin pushing for a neo-Cold War Eurasia bloc, tensions in the South China Sea and other global problems. The UK must consider all the implications.”

For further comment call Tim Harcourt on 02 9385 3816, 0408 485 479, or Email tim.harcourt@unsw.edu.au.

Media contact: Julian Lorkin: 02 9385 9887 | 0405 805 365 | j.lorkin@unsw.edu.au

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