MP's murder seen swinging votes in favour of 'Remain'
London
STERLING and the UK stock market rallied on the view that the murder of Yorkshire MP Jo Cox would swing Labour and other voters to vote to stay in the European Union (EU). The tragedy took place as the International Monetary Fund (IMF) again warned of the consequences for both the UK and Europe if voters chose "Brexit".
Prior to the murder of the popular young MP, markets had tumbled as the polls had predicted Brexit. But they began to rally as news spread that witnesses heard the suspect yell "Britain First" as he attacked Mrs Cox, who was campaigning for "Remain".
The rally continued on Friday as sterling and stock market bears covered their short positions and traders began to buy sterling and shares on the view that Labour and undecided voters would swing towards Remain.
A spot YouGov poll said that as many as 34 per cent of respondents thought that the current political debate was responsible for the atrocity. Just over 50 per cent of respondents thought it was unfair to link the two, but the market disagreed.
Participants took the view that former premier Gordon Brown, who was highly successful in encouraging Scottish voters to vote for UK Union in last year's Scotland referendum would warn wavering Labour voters to choose the EU over Brexit.
Especially since the Southern Poverty Law Centre, an established US civil rights group, has produced receipts and invoices bearing suspect Tommy Mair's name that it says are from the neo-Nazi National Alliance group.
According to a report in The Independent, the receipts show that Mr Mair bought US$670 in printed material from the white supremacist group, which was until 2013 one of the largest neo-Nazi organisations in the US. He is also alleged to have purchased a handbook on building improvised weapons, explosives, and incendiaries, according to the records. The documents, which date from between 1999 and 2003, show Mr Mair's name and an address in Batley, in Ms Cox's constituency.
Meanwhile, IMF managing director Christine Lagarde again warned that "a vote to leave the EU would create uncertainty about the nature of the UK's long-term economic relationship with the EU and the rest of the world".
"A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output. Following a decision to exit, the UK would need to negotiate the terms of its withdrawal and a new relationship with the EU - unless it abandoned single market access and relied on WTO rules, which would significantly raise trade barriers."
"It seems likely," she said, "that ratification of a new deal would require unanimous consent of all EU member governments, making agreements subject to considerable political risks. As EU-level agreements also cover the UK's trading relationship with 60 non-EU economies (and prospective arrangements with another 67 countries are in the works), the UK would also need to simultaneously renegotiate these arrangements, or else see them revert to WTO rules.
"These processes and their eventual outcomes could well remain unresolved for years, weighing heavily on investment and economic sentiment during the interim and depressing output. In addition, volatility in key financial markets would likely rise as markets adjust to new circumstances."
Philip Gerson, deputy director of the IMF's European Department and UK Mission Chief, noted in the IMF's latest UK economic update, which was similar to the one published last month, that "in common with many advanced economies, productivity growth has been low for several years".
"The UK also continues to struggle with a wide current account deficit . . . which leaves the UK vulnerable to changes in economic sentiment that could make it more difficult to finance investment and hence slow growth.
"Commercial and household real estate markets have been buoyant in recent years, and the share of new mortgages at high loan-to-income ratios has been rising. If this continues, households and banks will be more vulnerable to house price, income, and interest rate shocks."
The IMF report warned that London's status as a global financial centre could also be eroded, as UK-based firms may lose their "passporting" rights to provide financial services to the rest of the EU and much euro-denominated business may over time move to the continent.
The IMF reiterated that Brexit could bring in its "sharp drops in equity and house prices, increased borrowing costs for households and businesses, and even a sudden stop of investment inflows into key sectors such as commercial real estate and finance . . . Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle".
"Any limited support for net exports caused by an abrupt sterling depreciation would only partly offset the hit to GDP from reduced consumption and investment, and inflation could also rise well above target for some time. Contagion effects could result in spillovers to regional and global markets, although the primary impact would be felt domestically."
Brexit economists believe that the IMF's warnings are exaggerated, but they concede that if the UK goes it alone there will be a period of uncertainty.
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