Billionaire investor George Soros has warned a vote to leave the European Union would spark “black Friday” resulting in a devaluation of the pound that would leave voters worse off.
Writing in the Guardian, Soros says the devaluation of the pound after a Brexit would be worse than the 15 per cent fall on “black Wednesday” in September 1992 when he made substantial profits for his hedge fund investors.
He predicts a potential fall of more than 20 per cent and says if the pound drops to below $1.15 then £1 would be worth around €1.
He disagrees a devaluation would be helpful to the economy, which he says was the case in 1992.
Soros says: “That devaluation was healthy because the government was relieved of its obligation to ‘defend’ an overvalued pound with damagingly high interest rates after the breakdown of the exchange rate mechanism.”
He cites three reasons why devaluation after Brexit would be unhelpful: the Bank of England would not cut interest rates, the UK’s “large current account deficit”, and because manufacturing exports are unlikely to improve.
He says: “Interest rates are already at the lowest level compatible with the stability of British banks. That, incidentally, is another reason to worry about Brexit. For if a fall in house prices and loss of jobs causes a recession after Brexit, as is likely, there will be very little that monetary policy can do to stimulate the economy and counteract the consequent loss of demand.”
On the account deficit he adds: “The devaluations of 1992 and 2008 encouraged greater capital inflows, especially into residential and commercial property, but also into manufacturing investments.
“But after Brexit, the capital flows would almost certainly move the other way, especially during the two-year period of uncertainty while Britain negotiates its terms of divorce with a region that has always been – and presumably will remain – its biggest trading and investment partner.”
Soros says a Brexit vote would make some people very rich but would leave most voters “considerably poorer”.
He adds: “I want people to know what the consequences of leaving the EU would be before they cast their votes, rather than after. A vote to leave could see the week end with a Black Friday, and serious consequences for ordinary people.”