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How Brexit will impact the UK economy?

According to Daniele Bianchi, of Warwick Business School, is an Assistant Professor of Finance and researches financial econometrics, asset pricing and commodity markets, on the whole, the negative impact of Brexit on exchanges rates, on the political landscape, and on international trade agreements, will cause short-term damage to the UK economy...

On the whole, the negative impact of Brexit on exchanges rates, on the political landscape, and on international trade agreements, will cause short-term damage to the UK economy, which will be unlikely to thrive in the longer run either.

"If the UK votes for leave we should expect a substantial depreciation of sterling across major currencies in the very short-term. Volatility of the exchange rate against the euro and US Dollar is likely to increase as well, reflecting market uncertainty on the consequences, both politically and economically, of leaving the EU with a potential sell-off in sterling denominated assets.

"The pound reacted quickly to opinion polls over the last week and will probably keep doing that as news on how the transition procedure to leave the EU unfolds.

"Another source of uncertainty that a leave vote could trigger is political uncertainty. Brexit campaigners are a minority in the current government and a vote for Brexit could lead to political turmoil and a call for a new general election.

"In the short to medium-term, this could also be reflected in the volatility of sterling against major currencies and financial markets as a whole, making the sterling devaluation persistent in the medium term.

"In the longer term the economic consequences of a vote for Brexit are more difficult to estimate although a negative effect is to be expected. Indeed, 55% of the UK’s trade is with EU countries and 30% with countries that have agreements with the EU, agreements which should be re-visited in case of a Brexit. Arguably, leaving the single market would place the UK in a worse situation in discussing trade agreements."

Daniele Bianchi , June 2016

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