Pound could crash by 20% with UK’s EU exit: Goldman Sachs
05 Feb 2016
The pound could lose a fifth of its value if the UK voted to leave the EU, Goldman Sachs has warned.
According to the leading investment bank, the country's large current account deficit would be a ''source of vulnerability'' in the event of a vote for Brexit, or Britain's exit from the EU. The pound could be down to as low as $1.15 or $1.20, according to the bank.
According to George Cole, a Goldman economist, who referenced recent comments from Mark Carney, the Bank of England Governor, had admitted that the UK was dependent on the ''kindness of strangers'' to fund its large current account deficit.
Life would become harder for households and importers, with the crash with foreign goods become costlier. Holiday goers would also find that their pounds would not go as far in foreign locations. The depreciation would, would, however, aid many of the UK's exporters.
Despite some recent improvement, economists had pointed to the UK's high and persistent current account deficit as a risk. At 3.7 per cent, the gap represented the economy's reliance on inflows of foreign capital. It was thought that a ''sudden stop'' event could leave the country in a precarious position, as the economy suffered from a sudden increase in the levels of capital flowing out.
Meanwhile, Goldman Sachs faced accusations of 'hysterical scaremongering' last night warning that the pound would collapse in value if Britain votes to leave the EU.
The US bank had been pouring money into the campaign to keep the UK a member.
Rejecting the claim last night, Steve Baker, co-chairman of Conservatives for Britain, accused Goldman's of trying to create scare scenarios.
According to the MP, a Commons Treasury committee member, 'It was exactly this kind of hysterical scaremongering which the Norwegians rejected when they sensibly decided not to join the EU.'
Bank of England governor Mark Carney also rejected the claim and gave an upbeat assessment of business confidence.