Rough year ahead, however unlikely a Brexit

It has already been a trying start to 2016; you would be forgiven for wondering what else might be thrown at us, such as a UK exit from the EU and a possible fall in the pound to €1.20 with all its implications. Cameron’s negotiations with fellow EU heads of state have been brutal and the rising voice of “out” supporters has set the tone for the run-up to the EU referendum to be held later this year.

Will we, won’t we… what are the odds?

The general election and the Scottish referendum suggests there is a bias towards preserving the status quo. Moreover, many analysts point to a probability around 30 percent. Also, it is believed the biggest uncertainty and impact will come from an “out” vote compared to “in”, so it is unsurprising that most of the predictions suggest an “in” outcome.

Given the enormity of the referendum, described by Cameron as a “once in a generation decision”, one would think that there was agreement on the implications of an “out” decision. This is not the case; Credit Suisse predicts “an immediate and simultaneous economic and financial shock” and JP Morgan has suggested that they may well quit the UK upon an “out” result. Yet, Capital Economics seem more relaxed: “Although the impact is uncertain, we doubt that Britain's long-term economic outlook hinges on it”.

How has sterling faired so far?

As uncertainty and the possibility of an “out” vote has grown, sterling has taken a hammering against the euro, with a fall in the rate to $1.20 or so, as some predict, may be on the cards. If you are making international money transfers, you would highly benefit from contacting a currency broker, such as FC Exchange, to see how they can help you manage these currency market fluctuation risks.

Brexit impact through ten key channels

The outcome is highly uncertain as there are many unknowns, including the timing of the vote and the outcome of renegotiations. Also, if or when it happens, it will be a long and protracted process; the full process could take 10 years as the UK would need to redefine its relationship with the EU. Some points will be fixed on the road and others will not, creating additional uncertainty.

Scottish independence may come back to the table as a Brexit would increase the risks attached to Scottish stocks. Finally, for British expats living within the EU, many of the benefits possible through membership may disappear.

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