On June 23, the UK will vote on whether to remain in the EU or to leave. Since the referendum was called some months ago, polling has suggested the Remain side holds a small lead over the leave side. Polling experts tell us that as we approach voting time, undecided voters tend to opt for the status quo and will vote to remain.
The bookies are still odds on that the UK will remain in the UK after the vote. Overseas investors however have pulled billions of pounds out of UK investment funds in recent months with US investors in particular leading the charge to divest themselves of UK and European assets.
If the bookies and the polls are wrong and the UK votes to leave the UK, what happens next?
The uncertainty of the Brexit process is highly likely to result in business delaying any spending or investment plans. This would cause the UK Government to miss its current budget reduction targets with a corresponding reduction in government spending. It is estimated this would reduce UK GDP by between 1% and 2% for two years, although the UK Treasury forecasts a reduction of between 3.6% and 6%.
The departure of the UK from the EU will likely mean tariffs being imposed on British goods exported to the EU and the sectors most affected are likely to be autos, textiles and agriculture. Banks are likely to be the most affected sector because European regulation is moving towards a single market in financial services. That is going to make it not just difficult but practically impossible to do financial services business from outside its borders.
On the other hand, if the bookies and the pollsters are right and the UK votes to remain in the EU, we may see an increase in the FTSE 250 and the FTSE Small Cap Index which at current prices, clearly have a valuation discount built in. This could present a substantial opportunity for growth if the vote goes in favour of remaining in the EU.