British exit from the EU is the “number one risk” on the horizon, according to Ben Edwards, fund manager of the £378m BlackRock Corporate Bond fund.
Speaking last week, Mr Edwards said, “The Brexit risk is unquantifiable. Even if we knew about the process and the timing. The UK can vote to leave the EU, but not to leave Europe.” He further added that any exit would not be a “messy divorce, but an amicable split.”
With regards to planning for a potential exit, Mr Edwards believes we should “refocus” on Europe and look into what the EU would look like without the UK.
He added that, if the UK were to exit, the next point would be to ask which country is next. “Are any of the smaller countries rethinking it and focusing on us leaving, and will focus shift to the EU in its entirety? I am going to spend time thinking about what it means for various countries rather than just the UK,” he said.
Meanwhile, BlackRock has published a 16-page report titled titled ‘Brexit: Big Risk, Little Reward - The UK Referendum on Europe.’ According to the report, economy and immigration are the two key issues dominating the debate.
The report provides a comprehensive analysis of the risks of a British exit from the EU. The report emphasises that a newly independent UK would likely have reduced leverage to fashion trade deals across the continent and less clout to negotiate regulatory standards for EU market access.
Explaining that a British exit could spur separatist calls and embolden populist parties across Europe, the report states that an EU breakup as a result is not seen. It further states that the upcoming referendum represents a critical juncture for the UK and the EU alike and comes at a time when the global outlook is clouded by unusual uncertainty.
On the UK economy, the report says that a leave vote would have serious challenges for the economy such as a sharp sterling depreciation and a rise in 10-year gilt yields. Portfolio flows into the UK could falter, pressuring domestic sources of funding for the budget deficit. However, a vote to remain would mean business as usual. The outlook for UK interest rates would likely return to familiar dynamics and a BoE rate hike could come sooner than the market is currently pricing, according to the report.