Concerns that Britain could leave the European Union saw the pound plummet to a seven-year low yesterday (Monday) after Boris Johnson added his name to a growing list of MPs who will campaign to leave the bloc.
Sterling fell by as much as 2.42 percent - or 3.5 cents - against the dollar to $1.4058 as the London Mayor's decision triggered a string of warnings about the consequences of a Brexit.
Citibank raised the probability of a Brexit to between 30pc and 40pc following Mr Johnson's decision, from a previous forecast of between 20pc and 30pc.
Two main credit rating agencies also warned of "significant" long-term risks if the UK opted to leave the EU in the June 23 referendum.
Moody's said it would put Britain on "negative watch" if it voted to leave the EU, which indicates a one-in-three chance the UK's credit rating could be cut. Fitch said lengthy negotiations in the event of a Brexit "would weigh on confidence and delay investment decisions".
Economists at ING said the pound was likely to fall further in the run-up to the referendum.
Goldman Sachs has warned the pound could crash to $1.15 if Britain votes to leave, while Morgan Stanley believes sterling will drop to $1.30 in the event of a Brexit. Jacob Nell, an economist at the bank, said the trauma would knock 1.7pc off UK GDP and "push the economy close to recession".
Analysts at Morgan Stanley believe there is a 35pc chance that Britain will leave the EU. Mr Nell said this could go up to "40pc" if Mr Johnson played an active role in the "Out" campaign.
Reference: The Daily Telegraph
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