UK's NIESR forecasts 20 percent slide in sterling if Britain leaves EU

[May 10, 2016]  LONDON (Reuters) - Sterling is likely to fall by a fifth in the immediate aftermath of a British vote to leave the European Union on June 23, triggering intense inflation pressure, Britain's National Institute of Economic and Social Research said on Tuesday.

NIESR, an academic research body, said that if Britain voted to leave the EU, the economy would be 1 percent smaller in 2017 than if it stayed in, and 2.3 percent smaller by 2018.

"Heightened risk and uncertainty will cause sterling to depreciate by around 20 percent immediately following the referendum, which will result in an intense bout of inflationary pressure," NIESR said.

NIESR's forecast of the short-run impact of leaving the EU is similar to that produced by some banks.

Its forecast of the longer-run impact is less than that of Britain's government, which NIESR said was partly because it did not attempt to model the longer-run impact of Brexit on British productivity, though it said this was likely to be negative.

NIESR said it expected British GDP by 2030 to be 1.5-3.7 percent lower if it left the EU than if it stayed, depending on how favourable a trade deal Britain reached.

Real wages were forecast to be 2.2-6.3 percent lower if Britain left.

If Britain stays in the EU, NIESR said it expected the economy to expand by 2.0 percent this year, 2.7 percent in 2017 and 2.5 percent in 2018.

(Reporting by David Milliken; Editing by Ana Nicolaci da Costa)

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