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IMF says that Brexit could send shares tumbling

“Watch your thoughts, for they will become actions” — Margaret Thatcher.

Much of the debate about whether Britain should or should not leave the EU has been conducted in the future tense. People ask what would happen if this schism took place. They say that if Britain left Europe the pound would crash, or if Britain left the EU the economy would suffer.

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Terrible things are taking place

The ‘Remain’ camp says these things in the hope that people will vote to stay in, and then none of these terrible things will actually take place, and these fearful predictions would amount to no more than speculation.

But I have some news for you: these terrible things are already taking place.

Take the employment numbers. Since early 2013 Britain has been a jobs creation engine, as it has pulled away from the Credit Crunch mire, and the economy has been going from strength to strength. From October to December 2015 employment increased by a massive 205,000. The numbers for the 3 months to January 2016 were also impressive, with a rise in employment of 116,000.

The British economy seemed to be unstoppable. Then, on 20 February 2016 the Prime Minister announced that an EU referendum would take place on 23 June. Cue the next set of jobs figures. This time only 20,000 extra jobs were created. What’s more, the unemployment figures increased by 21,000.

What about economic output? Well, the economy has been recovering strongly since the dark days of the Great Recession. From October to December 2015 GDP increased by 0.6% – the economy was ticking over nicely. Then from January to March 2016 this fell to just 0.4%.

Then there are house prices. According to the Halifax house price index, in the 3 months to March 2016, house prices increased by 2.9%. But in the 3 months to April, the rate of increase halved to just 1.5%.

“Nothing positive”

Which brings me to the IMF’s comments today about what would happen if Brexit actually took place. At a press conference in London, Christine Lagarde said

We have looked at all the scenarios. We have done our homework and we haven’t found anything positive to say about a Brexit vote.”

The picture is stark: Britain’s economy could be tipped back into recession. Investors would be gripped by fear, sending house prices tumbling. And panic in global markets would lead to the FTSE 100 crashing. What’s more, the effects of Britain’s move would reverberate globally, and would be perhaps the most destabilising factor in the world today.

Now, speaking for all those seasoned stock market investors out there reading this article, would we really want to see a repeat of the Eurozone crisis in 2011? I don’t think we would. But this is what we are risking.

Worries about Britain leaving the EU are already resulting in Britain’s business’s freezing hiring, companies passing on investment opportunities, and shoppers spending less. If we actually did leave Europe, the results would be frightening.

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