Central bank titans warn of Brexit tremors as global recession fears surface

Janet Yellen


ith only two days to go before Britons head to the polls, Ms Yellen warned that a withdrawal from the EU “could have significant economic repercussions”, during her testimony to the US Senate banking committee, reports The telegraph.

She cautioned that Brexit “could usher in a period of uncertainty”, and potentially a period of market volatility that could worsen financial conditions in the US, darkening the outlook for the world’s largest economy.

The Brooklyn-born economist added that there was a risk that the vote could lead to a “risk-off” flight by money managers into the perceived safety of US assets, driving up the value of the US dollar.

Separately, Mr Draghi warned that it was “very difficult to foresee the impact and various dimensions of how the vote in the UK will impact markets and the economies of the eurozone”.

The Italian economist said that “it would be difficult to speculate about one outcome, we’re trying to be ready to cope with all possible contingencies”. He insisted that the central bank had “done all the preparation that is necessary”, and explained that the central bank had made plans to stabilise jittery markets, if the need arose.

Ms Yellen admitted that the fallout after a Brexit vote was “by no means certain”, noting that “it is very hard to predict” the economic impact. A US recession sparked by Brexit is “not the most likely case”, she pointed out. Nonetheless, a divide in Europe might set back progress in raising US interest rates.

It came as Morgan Stanley economists told clients to prepare for the possibility of a global recession if Britons voted to leave the EU behind.

A Brexit result would be likely to push global growth below 3pc, the bank’s analysts said, pushing the world “into the danger zone for a global recession”, on Morgan Stanley’s definition of GDP growth below 2.5pc.

The Wall Street bank said that “a vote to leave could cause protracted political uncertainty in Europe, creating negative spillovers for the rest of the world”, resulting in a downturn, if not an outright fall in activity, across Europe.

The bank said that a British vote to separate from the EU would be likely to force the Fed to “put its tightening campaign on hold”, killing hopes for future interest rate rise in the near term.