BMI provides Brexit analysis

In the wake of the UK’s momentous decision to leave the European Union, BMI Research has published a special report ‘UK Votes Leave: What Next?’.

Highlights from the report include BMI’s comments including:

 

‘The political fallout from the referendum will cast a shadow over UK politics for the weeks, months, and years after the vote. Prime Minister David Cameron has already announced his intention to resign, and we expect more political turmoil in the wake of the result. The vote to leave the EU could spur a breakup of the United Kingdom as a whole.’

 

‘Our short-term baseline scenario for the UK economy is a significant slowdown in growth in late 2016-17 led by weak gross fixed capital formation. In a ‘worst-case’ scenario, which we see as highly unlikely, the UK would enter recession, as capital flight and financial market volatility necessitate interest rate hikes from the Bank of England.’

 

‘The main impact of a Brexit on UK industry will be felt through four channels: investment delays, shifting cost bases, export disruption and public funding cuts. The most negatively affected UK industries will be airlines, agribusiness, autos, homebuilders, retailers and potentially financial services providers.’

 

‘The Leave vote will have major implications for the future of Europe. In the short run, growth will be negatively impacted. Eurosceptic movements and EU membership referendum calls will mount in several key member states, with Denmark and Sweden likely to be first in line, and Italy, the Netherlands, and other key members of the bloc re-examining their relationship with the union. Over the longer run, though, Brexit may merely accelerate the increasingly inevitable ‘two-speed’ division of Europe, in which the continent’s core institutions become more and more eurozone-centric.’

 

‘The Brexit vote could be the trigger for further financial market weakness, raising the prospect of a global financial crisis. Brexit is one of many tail risks that BMI have highlighted for 2016, and it makes a number of these other risks more likely, including a eurozone banking crisis, a Chinese currency devaluation, and a US recession.  That said, the immediate moves are likely to provide longer term opportunities in UK assets once the dust settles.’

 

The report brings together BMI’s country risk and industry sector analysis to explain what ‘Brexit’ might entail both for the UK and for countries further afield.