The pound would tumble post-Brexit, says EIU

Political and economic tremors would be felt post-Brexit, sending the UK into a recession and lowering the pound at least until 2020, according to a think tank.

The Economist Intelligence Unit (EIU) released a report on Monday which warned investors would sell British shares and bonds straightaway after a Brexit vote on the referendum on the 23 June.

The Out and Down: Mapping the Impact of Brexit report said the “currency would be most pronounced in the weeks after the vote”. Their projections based on a full year would mean the average value of the pound against the euro and US dollar in 2016 would be 14% to 15% lower than in 2015.

By 2017-18, the EIU predicts that the economy would be deal with second-round effects as the previous year’s depreciation of the pound would be reflected in rising imports. This would impact consumer price inflation as companies would be reluctant to increase prices because of low demand.

However, the EIU did caveat that the “alarmist language may be over blown”.

Rising inflation on the back of the pound lowering "is unlikely to see prices skyrocketing in the way that they did during periods of hyperinflation in Zimbabwe or the Weimar Republic", it said.

But EIU said the uncertainty of the two-year negation period would have a negative effect on retail sales, with "nominal sales in 2020 likely to be about 6% lower if the UK leaves when compared to the baseline scenario of remaining".

Furthermore it predicted London’s status as a global financial centre would be dented and the sector would shrink. Operations and jobs would move to centres such as Frankfurt and Paris to ensure access to the single market.

The report also said that UK economy will shrink by 1% by next year, the first contraction in GDP since the economic crisis in 2009, and by 2020 the economy would be 6% or £106bn smaller had the UK voted to stay in the EU.

EIU analyst Danielle Haralambous, told the Guardian: “While some of the Remain campaign claims may seem alarmist, the fact is that a vote to leave would have a negative political and economic impact.

“The negotiation process would create a period of uncertainty, both for consumers and investors, sterling would weaken and prices would rise, especially as trading with European counterparts became more complex.”