The UK could find itself outside the European Union if Brits vote for a Brexit on June 23.
And policy makers, central bankers, and experts fear that Britain leaving the EU should cause catastrophic shocks to the economy if that happens.
The latest is Dr. Laurence Wormald, head of research and quants at the financial services technology provider FIS (formerly known as SunGard) and who previously worked as a consultant for the Bank of England and the European Central Bank.
Dr. Wormald sent an in-depth risk assessment looking at the potential impact of a Brexit vote on markets across the UK, Europe and the US to FIS clients in a report seen by Business Insider.
And his conclusion had some startling results. Here are three examples of just how dire his warnings are:
- UK and European stocks — Wormald predicts that Britain’s equity market could drop as much as 15%, with the wider European equity market falling up to 8% in the event of “Simple Brexit.”
- The pound will crater — The report says that sterling could fall 12% against the US dollar, and as much as 15% against the Euro.
- The 1 year interest rate for Sterling — Wormald says that GBP 1-yr rate could experience a +100% shock to volatility in the case of a “Simple Brexit.”
Dr. Wormald said (emphasis ours):
The UK referendum on 23 June 2016 will have a profound impact on Britain’s relationship with the rest of Europe, and it could also provide a significant shock to securities markets, particularly if the vote is to leave the EU. In this brief note we focus on the potential scenarios for equities, FX, rates and credit markets associated with a leave vote.
We have considered two “Brexit Scenarios”: one in which a leave vote does not fundamentally change the political balance within Europe, and another (which we call “Exit Contagion”) in which a UK leave vote leads quickly to calls from powerful anti-EU parties across Europe for a process of renegotiation with the EU under the threat of referenda, similar to that followed by the UK.
Other anti-EU parties may not be the governing parties at present, but they can claim sufficient popular support to destabilise their domestic politics in ways that will upset the markets.
And here is the killer chart to show all the biggest shocks in the event of a Brexit: