Britain could face a currency crisis if it votes to leave the European Union, the world’s largest fund manager says.
BlackRock Inc. says that in its worst-case scenario, a “vicious cycle of currency weakness, an abrupt stop to capital inflows and a sharp deterioration in market confidence” couldn’t be ruled out, Bloomberg reports.
“We couldn’t rule out a situation where sterling falls and doesn’t have a floor,” said Rupert Harrison, chief macro strategist for multi-asset strategies at BlackRock and a former special adviser to British Chancellor of the Exchequer George Osborne.
In this “traditional sterling crisis”, the Bank of England would be forced to raise interest rates even as the economy weakened.
Ewen Cameron Watt, chief investment strategist of BlackRock’s Investment Institute, who coauthored a report with Harrison, said a “severe” outcome would be the pound falling to around US$1.20, from US$1.395 Tuesday afternoon.
Harrison said this wasn’t the most likely outcome of “Brexit”, but a more probable scenario would still result in a “significant further fall” in the pound.
The currency has already fallen more than 5 percent this year against the euro and the US dollar.
A report from HSBC Holdings plc (00005.HK) this week said a 15-20 percent drop in the pound would be the most likely outcome of Brexit.
– Contact us at [email protected]