Brexit could trigger a “technical recession in the UK” – How will you vote?

  • Posted by Shyam Gokani in Uncategorised
  • May 12, 2016
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Bank of England Governor Mark Carney has warned a Brexit could trigger a “technical recession in the UK”

We want to hear your views and how you will vote?

Governor Mark Carney has today warned that a Brexit could send the UK back into a technical recession at his bank of England speech today. The warning came early into his speech when he slashed the growth forecasted over the next 2 years.

He also added there could be a “negative spill-over to global financial conditions because of the uncertainty generated by this country” i.e. the referendum. He said the Bank would “use all our tools” to support the economy after the referendum, but warned it was unable to “offset all the effects” of a Brexit vote. In summary, he would try to do what is within his powers to avoid any disruption to the UK market following a Brexit, but would be unable to control the initial impact to the UK if a Brexit were to happen.

Chancellor George Osborne said the Bank’s report showed a “lose-lose” outcome for the UK if Britons voted to leave the EU in a “clear and unequivocal warning” over the impact of Brexit. He went on to say “Either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods.

“This is a lose-lose situation for Britain. Either way, we’d be poorer.”

Governor Carney said the uncertainty in the UK economy is running at levels “not seen since the euro-area crisis” and added there was also a risk on the global economy.

According to the banks report, forecasts showed that the uncertainty of the Brexit weighing on the UK market will see the gross domestic product (GDP) slow to 0.3% down from 0.5% in the first 3 months of 2017, meaning the annual GDP will slow too. This was based on the UK staying in the EU. The uncertainty alone has already had a huge impact to the UK.

If we were to leave the EU, the impact would be considerably more. However, even if the vote is to stay in the EU, it would take some time for the UK to get close to where it should be as the uncertainty unwound.

The Bank of England cut its UK growth forecasts to 2% in 2016, 2.3% in 2017 and 2.3% in 2018. This is down from February’s forecasts for growth of 2.2% in 2016, 2.4% in 2017 and 2.5% in 2018.

The Bank has stopped short of compiling a full forecast for a Brexit vote as it seeks to avoid being dragged into the political debate.

“Households could defer consumption and firms could delay investment decisions, lowering labour demand and increasing unemployment,” according to the minutes of the latest rates meeting.

Pound sterling has already seen a huge drop since the peaks in November by up to 10% against some currencies, the majors including the Euro saw a drop to the April lows of 14% and US Dollar saw a drop by 11 % on the same time frame.

A Brexit would see a further drop in Pound Sterling. The bank did say that a Brexit would see a further revision down in GDP as well as inflation, which today was revised slightly higher in today’s minutes. We may also see further gains on inflation as oil prices edge higher.

Carney added that the bank is forecasting that all being well we could potentially see a slight adjustment higher in interest rates in 2-3 years.

So overall a dovish tone to the speech as the risks of Brexit are made clear by the Governor, but a positive signal for inflation as figures have been revised ever so slightly upwards. The pound is seeing a slight gain today on the back of this information, but going forward the pound will still be under pressure from the uncertainty of a Brexit.

Anybody wanting to know further information about how currency markets are going to be affected leading up to the referendum should get in touch with me to prevent any exposure to the currency markets.

I hope you have enjoyed reading the article, please feel free to comment on your views and whether you think we should remain in the EU or should we Brexit?

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