Brexit vote adds to downside risks

The UK’s vote to leave the EU has weakened the outlook for the European Economy. Admittedly, the financial market reaction has been muted and we think that the UK will ultimately fare well outside the EU. But there will be a near-term hit to UK demand, with damaging effects on other countries’ exports. Rising euroscepticism elsewhere is adding to political uncertainty, which could hit business and consumer confidence. And the vote has highlighted problems in the Italian banking sector that threaten to have wider ramifications. We have revised down our growth forecasts for most European economies and expect monetary policy to be even looser than we had previously anticipated.