• New report by Rathbones considers implications of EU referendum, and aims to dispel five of the most common myths around potential Brexit.
• Report finds the consequences to either leave or stay in the EU more complex than current rhetoric suggests.
• UK financial markets to become increasingly volatile as a result of economic and policy uncertainty, but emergence of any pervasive trends unlikely.
• If the UK votes to leave, then some industry sectors are more vulnerable than others.

Rathbones, one of the UK’s leading providers of investment management services for individuals, charities and professional advisers, has today released a report considering the potential consequences of the imminent EU referendum.

The report, titled If you leave me now, looks to assess the impact of the Referendum on the markets and investment strategy.

One of the main aims of the paper is to challenge some of the hyperbole or “myths” surrounding five main issues. Specifically, the report focuses on the following areas:

• Immigration: The first of these myths is that immigration has held down wages and pushed up unemployment for UK nationals: the evidence suggests this has not happened. Therefore, we do not expect wage growth to increase or unemployment to fall substantially if the UK votes in favour of Brexit.
• Trade: The second is that UK trade would collapse after leaving the EU. Firstly, the government may be able to withdraw but negotiate special terms of access to the common market — ‘soft Brexit’. Even under a ‘hard Brexit’, the UK would remain protected from any vengeful treatment by global trade rules, although some sectors would suffer more than others, particularly autos, food and clothing.
• Financials: The third myth is that the Swiss financial services industry has thrived outside the EU, and that this is a model for the UK. Yet Switzerland’s relationship with the EU could not be replicated. Evolving legislation could push financial services activity towards the Continent if the UK votes for Brexit.
• Public finances: The fourth myth is that the UK’s public finances would improve substantially if it leaves the EU. A simple calculation suggests the country would be £9 billion better off in the current tax year if it did not have to make contributions to the EU. Yet at least two-thirds of this saving would probably be eroded by associated losses and compensatory domestic public expenditure. Perhaps the greatest risk to UK finances is that Brexit would create uncertainty, which could, by itself, reduce growth.
• Foreign investment: The fifth myth is that foreign investors will withdraw from the UK if it leaves the EU. To date, it is difficult to conclude that the prospect of Brexit is derailing investment flows. 2014 was a record year for inward investment, despite the inevitability of the referendum. Surveys indicate that R&D will be the focus of investment projects over the coming years, and here the UK has unparalleled attractiveness. Although it is difficult to forecast the long-term implications of Brexit, we do not expect a divestment of foreign investment in the short to medium term, but suggest that investor uncertainty could adjourn future inflows.

Edward Smith, Asset Allocation Strategist and author of the paper, If you leave me now, says: “The referendum result could push the UK in several different directions, which makes it difficult to forecast the long-term effects on the economy. In an increasingly globalised world, the UK economy should do well if the country can successfully negotiate new treaties of economic integration with higher growth nations. In the short term, the referendum is unlikely to have a substantial directional impact on financial markets. Yet we expect markets to react to any lack of clarity and associated uncertainty. Sterling is likely to suffer the most volatility, and there are indications that currency traders are positioning for some extreme moves.”

He adds: “In our paper, we wish to show that the economic and financial implications of either decision are more finely balanced and multifaceted than the current rhetoric suggests, or is likely to suggest, as the referendum approaches. Therefore, we would urge investors to view holdings that rest on the result of the referendum per se with considerable circumspection.”

For further press information, please contact:
Matt Jamieson
Team Spirit
020 7360 7829
07468 714610

Alistair Campbell
Head of Client Marketing, Rathbones
020 7399 0107

Notes to editors:
Rathbones’ responsibility to our clients is to manage their portfolios and assess the impact of the Referendum on the markets and their investments. To do this effectively, and without conflict, we do not take political views. Rather, our role is to research and assess the economic and market impact of the vote, whatever it might be, so that we can inform our clients of the financial implications of either outcome. We also aim to assess the potential risk and volatility that could arise before and after the vote, and the impact that may have on our clients’ funds and how they are positioned through the period. To this end, we have written a report which aims to dispel some of the current campaign rhetoric and examine the economic and financial consequences of the EU membership referendum, and the implications for investment strategy.