LONDON // Analsyts approached by The National were on Wednesday quick to question HSBC’s doomsday scenario of the collapse of sterling in the event of Britain leaving the European Union.
The bank said on Wednesday the British currency could lose up to 15 per cent of its value and UK economic growth could be up to 1.5 percentage points lower next year if Britons vote to leave the European Union in the June 23 referendum.
“A vote for Brexit would have potentially huge consequences for all asset classes. 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 estimates 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 was trading below US$1.40 for the first time in seven years and the euro was trading 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 affects 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.
“There are so many unknowns and intangibles at play, including interest rates here and in the US.”
However, he said that when the pound does start falling it is very difficult to reverse.
Mr Hewson predicted that sterling is now on course for its lowest monthly close since early 2002.
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 businesspeople who are determined to get their message aross because they make an awful lot of money in Europe,” he said.
“The dollar is very strong at the moment and the pound slipping to $1.39 is unconnected with Brexit.”
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