The countdown for the Brexit referendum began weeks ago but with only 5 days left until millions of Brits go to the polls, the effects of a possible UK break from the European Union have already taken hold, especially in financial markets.
Any threat of a nation departing from the EU has significant ramifications and efforts to avoid such a drastic move have always been implemented. Greece is a case in point, a country bulled back from the brink of retreat by severe financial assistance from the other EU members. The idea of the UK not being part of the larger European organization has divided the country and has sent financial markets speculating in all directions.
There are many arguments for the UK staying part of the EU or leaving to go it alone. Some say that Britain’s government has lost enough power to the EU and that it is high time for it to take control of its own country and leave the European Union. They point to the EU as being a “dysfunctional organization,” and question the continued existence of the EU in the future.
Currency Woes
Many economists, however, are mostly concerned with the sterling’s ability to remain solvent should London be left on its own. Currency traders worldwide are betting that the pound will fall to record lows against the euro if Britain votes to leave the European Union, citing a worse fate than that witnessed during the 2008 crash and the 1992 Black Wednesday crisis. Investors see the pound tumbling against the world’s major currencies if Britons vote to leave the EU and expect it to drop to €1.05 to €1.20 on the day after the June 23rd vote, sliding towards parity with the common currency for the first time in its history.
The pound could also lose as much as a quarter of its value against the US dollar, falling to its lowest levels in more than three decades, not far from its all-time low against the dollar in 1985 when it fell to $1.05, a year in which the American currency soared in value. Economists say that a fall in the value of the pound would increase inflation, as the cost of imported goods increased but this would probably not be felt until the very end of 2016 or early 2017.
