Sterling could fall as much as 20 per cent if British voters back leaving the European Union, Goldman Sachs has warned.
In a client note this morning, macro markets strategists at the US investment bank the UK’s current account deficit "would still be a source of vulnerability", adding that if Britain votes to leave the EU, an "abrupt and total interruption" to incoming capital flows could see GBP decline "by as much as 15 to 20 per cent".
Goldman is predicting that British voters will ultimately choose to remain in the EU, but said it was "worth asking" about the potential impact of Brexit given increased market sensitivity to the issue.
"A vote for the UK to exit from the EU is an event that would increase uncertainty, weigh on the UK outlook and raise concerns of foreign investors – potentially interrupting the flow of capital to the UK, sending the pound much lower," the strategists said.
Meanwhile, a new report out today from the Centre for European Reform think tank claims eurosceptics have over-stated the cost of EU regulations and Brexit would lead to higher barriers to trade and investment for the UK.
“A post-Brexit bonfire of EU rules would not be much of a liberation," said John Springford, a senior research fellow at the think tank. "The evidence does not support the claim that the EU’s rules are an economic straitjacket: repealing them would do little to boost the British economy.
"In fact, the reverse is more likely: if it left the EU and abolished its regulations, Britain would withdraw from the single market, raising barriers to trade and investment with its largest trade partner," Springford added.