Business secretary Sajid Javid warned on Monday (13) that financial markets could react sharply if Britain votes to leave the European Union (EU) next Thursday (23), as traders pushed sterling to its lowest level in eight weeks.
With polls showing public support is evenly split, the outcome of the referendum has increasingly dominated the performance of Britain’s currency and stock market, with investors already looking to protect themselves against price swings.
Javid, who backs Britain remaining in the EU, cited market volatility as a warning against voting to leave, highlighting the sharp reaction to an opinion poll last week that showed a large lead for the ‘Out’ campaign.
“How will the markets react if we vote to leave? It almost doesn’t bear thinking about,” Javid told the International Festival for Business in Liverpool.
Javid’s comments came as a top official with the German finance ministry said the country is preparing for increased market volatility if Britain votes to leave the EU next week.
Jens Spahn, parliamentary state secretary in the ministry, said finance and equities markets were already anxious about the possibility that Britain could exit the bloc, but the reaction to a “Leave” vote could trigger far greater volatility.
“It will be important to demonstrate stability,” Spahn said. He said a British exit would be a huge loss, but it would be critical for Germany and the rest of the EU to demonstrate unity and a determination to continue as a bloc.
The British pound remained fragile near a two-month low against the dollar on Tuesday (14) as two recent opinion polls show a lead for the “Leave” campaign. While many market players are sceptical about the polling, recent poll results do seem to suggest a momentum for “Leave” campaign, they said.
The pound fell 0.6 per cent to $1.4185, edging back in the direction of a two-month low of $1.4117 that had been set on Monday.
Analysts are concerned that if the UK leaves the EU, it would strip the bloc of a nuclear-armed global player and prove “disastrous” for its presence on the world stage.
The EU has been keen to increase its influence around the world in recent years, but any division within the bloc would likely be seized upon by Russia, whose ties with the EU have been badly damaged by the Ukraine conflict, analysts said.
“Great powers like the United States, China and India will see an EU weakened politically and geopolitically if there is Brexit,” Vivien Pertusot, Brussels-based analyst with the French Institute of International Relations (IFRI), said.
Meanwhile, British prime minister David Cameron reiterated a warning made in a newspaper interview published last Sunday (12) that pensions and the publicly funded National Heath Service could face cuts after a vote for Brexit.
Rejecting accusations of scaremongering, he said it was his job to talk about the potential dangers of pulling out of the EU, but there was a “strong, bold, patriotic, positive case” for staying in.
