First published: Prospectmagazine.co.uk, 9/06/2016
There could be a sustained decline in Sterling of 10 to 20 per cent
With two weeks to go until the EU referendum and opinion polls bouncing around either side of a very close outcome, a new focus is forming—at least in global financial markets—on Sterling. Soon, it may become a more ubiquitous totem as people become anxious about the outcome of the referendum itself, and start to see its impact on the currency as a weathervane for what lies ahead for the economy.
Angst about Sterling is hardly surprising. Most economists, and the credible UK and global institutions that have opined on the economics of Brexit, think that a vote to leave will result in a meaningful—and perhaps sustained—decline in Sterling, perhaps of the order of 10-20 per cent. Why would this happen, and how much would it matter if it did?
To counter the concern that “Remainers” have about a slump in Sterling, “Leavers” refer, completely out of context, to the European Exchange Rate Mechanism (ERM) debacle in 1992—commonly known as Black Wednesday….Read more: