Brexit Could Lead to A Global Recession

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World crisis. Europe view.A verdict by the UK to leave the EU would mostly trigger a massive sell-off in the pound, a sharp reduction in household income and a global recession, according to several experts. Analysts believe that the decision by the UK would have far-reaching consequences.

It would also have an instant and dramatic effect on global markets, investment, prices and employment.

According to George Soros (business magnate, investor), “Too many believe that a vote to leave the EU will have no effect on their personal financial position. This is wishful thinking.”

If there is a crash in real estate prices and unemployment after Brexit, as is likely, it would not be possible for a monetary policy to stimulate the economy and counter the resulting loss of demand.

As per assessments by various authorities, including the Bank of England and the International Monetary Fund, the average income loss per household because of a decreasing British currency would be around £3,000 to £5,000 yearly ($4,400 to $7,335).

Experts who monitor currency fluctuations predict that a Brexit could result in a 15 to 20% drop in the currency.

In 1992, the British currency had dropped, but it assisted the nation in the long-term by reducing the interest rates and boosting economic growth.

However, a devaluation would not be good for the economy this time because of three main reasons:

  • The Bank of England cannot reduce rates from the existing low levels compatible with the strength of banks in the UK.
  • The UK has a huge current account deficit and most probably would not witness another cash inflow.
  • The loss of currency value would not assist exports because of uncertainty in trading environments that would be triggered due to the Brexit.

A Brexit would result in a Black Friday for the financial markets. There are huge amounts of short positions against the pound. They would moderate any currency decline post-Brexit.

At present, speculators would be waiting to exploit any opportunity. It would seriously impact the economic well-being of most people.

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