ING highlights Brexit threat for UK and EU economies

ING Group has published a research on the impact of a Brexit on the UK economy and that of the European Union.

It also assesses the scenario that could occur if the UK is to stay in the EU following the referendum promised by the British Prime Minister David Cameron.

ING believes the referendum could be organised in June this year.

The impact of Brexit would be negative for the UK growth and currency as well as for asset prices, ING says.

“Coming up with a single number for the impact on GDP of the UK leaving the EU is almost impossible. Gauging the effects on business and consumer confidence and how this translates into spending within the economy is difficult at the best of times.

“Incorporating potentially big swings in asset prices and sterling and also the uncertainty over how foreign investors and businesses will behave, it becomes even more challenging.

“That said, political and economic uncertainty is an unambiguous negative that we feel will be damaging to the UK growth story, particularly in the lead up to the referendum and the period just after the vote, irrespective of the outcome,” the firm reports.

“We see 2017 UK GDP growth coming in at around 1.5% YoY in such a scenario, versus 2.7% if the UK votes to stay,” it points out.

ING’s research suggests that “the risks associated with a Brexit will principally be reflected in GBP markets ahead of the referendum.”

Also it estimates that if the UK votes to remain in the EU, this should lead to a bounce in asset prices and the UK currency.

What consequences for the EU ?

Among potential consequences of a Brexit for the European Union, ING warns that a UK’s exit “could potentially lead to thoughts of a broader fragmentation of the EU”.

It would also impact the EU-US negotiations on the Transatlantic Trade and Investment Partnership as the EU would lose a strong defender of free trade if the UK decides to leave.

Regarding the impact of a Brexit on trade relationships between the UK and the EU, ING says that “even if a trade deal is agreed within the two-year window, our expectations of a sharply weaker EUR/GBP exchange rate in an environment of weaker UK demand means that exports to the UK are likely to suffer.”

Read the full report : The shock from Brexit – ING Jan 2016

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