Analysts question HSBC’s gloomy forecast for sterling if Britain quits EU

London // Analysts approached by The National yesterday were quick to question HSBC’s doomsday scenario of the collapse of sterling in the event of Britain leaving the European Union.

The bank said yesterday the British currency could lose up to 20 per cent of its value if Britons vote to leave the European Union in the June 23 referendum.

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

The lender reckons sterling could fall 15 to 20 per cent against the dollar towards the lows of the mid-1980s, meaning it would move towards parity with the euro. On Wednesday sterling traded below US$1.40 for the first time in seven years and the euro was just under 79 pence.

But Michael Hewson, the chief market analyst at CMC Markets, cautioned that HSBC was painting an overly gloomy picture. “This is not a binary outcome,” he told The National

“There will be effects on both sides of the channel. It’s not just about doom and gloom for the UK.

“How will the euro fare when the area’s second-biggest economy stops funding it? For me, the question is what does that mean for the future of the EU,” he said.

Other analysts were equally cautious over HSBC’s assessment.

David Buick, a market analyst at Panmure Gordon, said he was deeply sceptical of HSBC’s worst-case scenario. “There’s a coterie of very senior business people who are determined to get their message across because they make an awful lot of money in Europe,” he told The National.

He predicted the pound would recover in the next few weeks, once everyone “shakes out their vitriol and good sense prevails”.

Simon Derrick, the chief market strategist at BNY Mellon, pointed out that HSBC’s measure of volatility over the past month for sterling against the euro “stands at almost exactly the same levels that it stood at on the day the UK exited the exchange rate mechanism [in 1992] and on the day the UK announced the banking bailout in 2008”.

Other analysts said that the near-term outlook for sterling was poor. Andy Scott, an economist at currency firm HiFX, predicted that the pound could fall towards $1.35, a level not seen since the early months of the financial crisis of 2009.

In the fund management community, powerful voices have joined both sides of the debate. Manny Roman, the chief executive of the London-listed hedge fund Man Group, warned: “Whilst it is hard to say exactly what the impact would be, the uncertainty and potential negative consequences of Brexit for the UK’s economy should not be underestimated.”

Meanwhile, Neil Woodford, one of the UK’s most successful fund managers, weighed in for the Brexit campaign.

He told the BBC that he disagreed with the heads of major British businesses including BT, Vodafone and Marks & Spencer who said that Britain was better off staying in the EU.

However, Mr Woodford added that it was very difficult to build a credible economic argument for the UK either staying in or leaving the union and that the debate was really a political argument over issues such as immigration and sovereignty.

business@thenational.ae

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