Market Overview

Here's How A Brexit Could Screw Up Britain's Economy

Here's How A Brexit Could Screw Up Britain's Economy
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In a new report, HSBC analyst Simon Wells explains why a British exit from the Eurozone would be disastrous for the U.K. economy in a number of ways. According to Wells, a “Brexit” coud trigger a panic and a domino effect in key areas of the British economy.

“Following a vote to leave, we think uncertainty could grip the UK economy, triggering a potential slowdown in growth and a collapse in sterling,” he explained.

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In the event of a “yes” vote, Wells predicts that 2017 U.K. GDP growth would be roughly cut in half, from an estimated 2.3 percent to 0.8-1.3 percent. In addition, the sterling could devalue 15-20 percent versus the USD, bringing it to its lowest levels since the 1980s and closer to parity with the Euro.

Currency depreciation would lead to an up to 5.0 percent jump in inflation, and bank rates would remain at 0.5 percent for even longer, with the possibility of further rate cuts to shore up confidence in the economy.

Consumers would witness cost inflation in general retail and food retail, and the impact on labor churn could mean labor shortages in certain areas, including construction.

For investors, Wells mentions banks, airlines and real estate as three areas that would be hit hard in the U.K. So far this year, the iShares Trust (NYSE: EWU) is down 10.7 percent.

Disclosure: the author holds no position in the stocks mentioned.

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