Leaving the European Union would drive the pound down to parity with the euro for the first time since the single currency was launched in 1999, analysts at UBS have warned.
Yesterday £1 bought €1.275, but leaving the EU would lead to the value of sterling falling by a fifth, the investment bank claimed.
The closest sterling has come to parity was at the end of 2008, in the teeth of the financial crisis, when the pound dipped to just below €1.02.
Last week the pound suffered its steepest sell-off against the dollar since 2009, falling below $1.39 for the first time in seven years, as fears about a Brexit had investors selling off sterling assets. The pound has borne the brunt of the market reaction to the prospect of leaving the EU, which the Cabinet Office yesterday said could lead to a “decade of uncertainty”.
Jeff Greenberg, an economic strategist at UBS, said he believed there was a 40 per cent chance that Britain would vote to leave the EU. If it does, the country’s current account deficit — the shortfall between what the nation spends and earns — will leave it vulnerable to what Mark Carney, the governor of the Bank of England, has described as “the kindness of strangers”.
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UBS is the latest bank to predict a collapse in the currency, but the first to forecast the pound’s parity with the euro. Goldman Sachs has said that the pound could fall to $1.15, the lowest level against the dollar since 1985.
UBS’s central scenario is for Britain to vote to stay in the EU and for the pound to bounce back to about €1.37 against the euro and $1.60 against the dollar.
