04:36

Malcolm Barr, economist at JP Morgan, has predicted Scotland would seek another independence referendum before the UK completes its EU exit, and “it’s likely that Scotland will vote to leave.”

Speaking to investors, Barr added that Northern Ireland was “going to be troublesome to manage” with Sinn Fein already talking about a referendum (although that is unlikely to happen).

In the EU, the vote to leave “is going to energise populist parties” but JP Morgan does not anticipate referenda on EU membership elsewhere.

European finance ministers are meeting today and there could be an emergency EU summer this weekend or early next week. “The initial signs are not particularly conciliatory... Out is out and there won’t be any special favours for the UK.”

Barr added:

“An emergency budget is possible but certainly won’t have any of the character that Mr Osborne described.”

His colleague Allan Monks believes the Bank of England will cut interest rates by 50 basis points [to zero] by the August meeting, with a 25bps cut in July “a distinct possibility”.

He said the Bank would weigh up the potential inflation shock resulting from the sharp drop in sterling against the damage to economic growth.

“There will be an inflation move up close to 3% by the end of next year on the basis of what sterling has done this morning, but I don’t think that’s enough to stop them from easing.”

Monks noted that the UK would retain access to the single market for the time being, but uncertainty will rise further, so “we expect that to create further delays in firms’ investment and hiring decisions.”

He is predicting that UK growth will “slow to a crawl” in coming quarters, with growth likely to be 1% lower over the coming year, while Britain’s unemployment rate is likely to rise by half a percentage point to 5.5% next year.

Paul Meggyesi, currency strategist at JP Morgan, said the pound had further to fall.



“I’m not convinced we’ve already seen the lows in sterling.”

The sterling-dollar rate could go below $1.30 over the next week or so, he said.