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Brexit carries a recessionary risk - Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 10, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Research Team at Nomura, suggests that the UK will hold a referendum on its EU membership in the next several months and if the UK votes to leave (25% probability), there will be significant uncertainty that could trigger a sharp correction of the UK’s large imbalances.

    Key Quotes

    “An unwillingness of external investors to finance the current account on current terms could cause a collapse in the currency of 10-15% over several months.

    Imported inflation would hit real incomes and could cause a belated household deleveraging that lowers house prices by 10%. We think these shocks could push the economy into a recession of about 2% from peak to trough.

    With limited fiscal room, we would expect monetary policy to respond with rate cuts and QE, instead of our baseline forecast for interest rate hikes.

    We analyse the impact on Gilts from a fundamental basis and supply/demand factors. Taking the two together, our highest conviction view is that a Brexit scenario should steepen up the curve, as the MPC cuts but foreign demand potentially stalls or even reverses.”
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