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BlackRock: Brexit carries 'big risk, little reward'

BlackRock, the world’s biggest asset manager, has warned that a Brexit would carry ‘big risk’, but ‘little reward’ with the UK set to be ‘economically worse off in the end’.

 
BlackRock: Brexit carries 'big risk, little reward'

BlackRock, the world’s biggest asset manager, has warned that a Brexit would carry ‘big risk’, but ‘little reward’ with the UK set to be ‘economically worse off in the end’.

Highlighting the risks more than a recent report by Capital Economics commissioned by Neil Woodford, which concluded that a British exit from the European would have little economic impact, BlackRock said that outside of the EU, the UK would have little influence on regulatory policy negotiations, sterling would be vulnerable, while gilt yields would rise, putting pressure on sources of funding.

The fund house said domestically-focused equities would also be hit, as would the London property market and a Brexit would also ‘hit global risk assets’.

Meanwhile, the EU would lose a major budget contributor and financial centre with the UK’s decision likely to embolden separatist movements in other countries.

In a note to clients ahead of the 23 June UK referendum on EU membership, the firm said that a vote to stay in the Union on the other hand would ‘reassure markets’, which are already jittery about the outlook for China.

‘A newly independent UK would likely have reduced leverage to fashion trade deals for the crucial services sector and less clout to negotiate regulatory standards for unimpeded EU access,’ said report author Joanna Cound, BlackRock’s head of public policy in Europe.

‘Both would be lengthy and painful processes, and we see the UK as economically worse off in the end.’

This is partly because of the risks to the financial services industry, Cound said, which would outweigh any cost savings from exiting the EU.

‘A Brexit would cut into the financial services industry’s outsized contributions to the UK economy, tax revenues and trade balance, we believe, and offset apparent fiscal gains from leaving the EU,’ she said.

‘We could see the EU pushing hard to harmonise standards for financial services and capital markets to the detriment of a UK financial industry dependent on single market access.’

She believes that a Brexit would prompt the Bank of England to cut rates or revive quantitative easing in the face of a departure, in order to stabilise bond yields, ignoring inflation caused by sterling weakness in the short-term. 

9 comments so far. Why not have your say?

Dennis R

Mar 02, 2016 at 16:23

As Ms Cound is head of Public Policy in Europe it is highly unlikely that she will espouse the views of the Brexit troops. I prefer to think that the Woodford commissioned report is less biased.

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Andy Charlton

Mar 02, 2016 at 17:58

I don't think it's a question of bias. It depends what you think the knock-on effects of Brexit would be.

Personally, I believe that the EU would try to punish the UK to the maximum. They don't want other EU states to think that they can walk away from the EU without consequences.

I also believe that Brexit has the potential (although the likelihood is very hard to judge) to precipitate the disintegration of the EU. Under different circumstances, that would not concern me in the slightest, but given the migrant crisis and the terrorism threat it concerns me greatly. History proves that it doesn't take much to trigger civil war, or worse, and if the EU has succeeded in anything, it is keeping the peace in Europe.

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Andy Charlton

Mar 02, 2016 at 17:58

I don't think it's a question of bias. It depends what you think the knock-on effects of Brexit would be.

Personally, I believe that the EU would try to punish the UK to the maximum. They don't want other EU states to think that they can walk away from the EU without consequences.

I also believe that Brexit has the potential (although the likelihood is very hard to judge) to precipitate the disintegration of the EU. Under different circumstances, that would not concern me in the slightest, but given the migrant crisis and the terrorism threat it concerns me greatly. History proves that it doesn't take much to trigger civil war, or worse, and if the EU has succeeded in anything, it is keeping the peace in Europe.

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Andy Charlton

Mar 02, 2016 at 18:01

Apologies for the accidental double post!

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Gleaner

Mar 02, 2016 at 18:32

Whilst the EU is intrinsically a good idea, it fails in that it is unaudited, wasteful, badly managed and corrupt.

Blackrock, like many (on both sides) issues throwaway unqualified unproven comments. "UK set to be ‘economically worse off in the end".

Why not just say, Brexit will cause a plague of frogs, or some other biblical disaster.

It is, as many have warned, an unknown. Maybe our currency will rise as the world see's we are free of the EU. Maybe they will be happier to trade with us.

Perhaps the 'big risk' is to remain within this crumbling institution.

As to the EU keeping the peace in Europe, many peoples from the former Yugoslavia might disagree.

Is Blackrock just playing politic's?

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Graham Barlow

Mar 03, 2016 at 11:46

With the present set up in Europe and the EU in particular Britain will remain the Milch Cow of the EU in may ways. The NHS alone is failing to collect any money worth while for its services to EU people; Yet every penny spent by France and Spain is collected off Britain. The gap in difference is so great it is a scandal. Britain will continue to soak up millions of the EU unemployed particularly from the eastern bloc. In addition millions of new people will qualify to come here. Like Turkey 75 million, plus Serbia. The prospect for the indigenous people in Britain is bleak in deed. There are already millions of Londoners unable to stay because of the horrendous property prices. . with councils showing favour to newly arrived immigrants . If this goes on real trouble is brewing. as sure as night follows dayThis Horror story for non Brexit is nothing short of threatening Blackmail They atre not patriots supporting Britain but the vested interest brigade.

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Jo Public

Mar 06, 2016 at 10:37

Some might consider those risks to represent the potential benefits of Brexit. Some might welcome a smack in the head for the London Property Market. A smaller economy might see a population reduced to more manageable proportions, and, combined with an unravelling of the UK, could see an end to having to maintain an expensive and risky "presence" in the world. A slump in the pound, and a return to inflation, might increase Bond Yields, but could also take the sting out of the National Debt ... etc. I would not rule out a few silver linings to Brexit, in the long run.

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croppp

Mar 06, 2016 at 13:35

VOTER APATHY 27% in last election .Dont believe my vote will make any difference .taken from survation website.

The ukip vote share 12.6%

The vote to stay in or leave the eu is a mammoth issue so important that many more people will vote in this referendum than anyone could imagine .

UKIP party voters will take 12.6% + this is certain

The 27% lobby that dont believe my vote will make any difference could vote. this referendum is the reason to vote and with this being a lasting issue would induce this lobby of non voters to vote .it looks certain in my view that a come out of europe is very likely .

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Steve Argent

Mar 07, 2016 at 10:53

As my DC pension is managed by Blackrock, I don't see such a problem with predicted increases in gilt yields. I'm still on the fence ref Brexit, but EU doesn't seem keen enough to want us to stay on board, so perhaps a parting of the ways is inevitable?

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