Wall Street banks eat their words on Brexit: Humiliating U-turn as they admit recession forecasts were wrong

  • Goldman Sachs, JP Morgan and Morgan Stanley warned of a recession
  • The powerful US investment banks donated £1.25million to Remain
  • But the banking giants now believe the UK will avoid an economic slump 

The Wall Street banking giants that helped fund the Remain campaign have torn up their forecasts for a UK recession in the wake of the Brexit vote.

Goldman Sachs, JP Morgan and Morgan Stanley warned of an economic slump after the EU referendum in June, but the powerful US investment banks, which donated a total of £1.25million to Remain, now believe the UK will avoid recession.

Leave campaigners accused bankers who signed up to the so-called ‘Project Fear’ of peddling ‘hysteria’.

Goldman Sachs, JP Morgan and Morgan Stanley warned of an economic slump after the EU referendum, but the powerful US investment banks, now believe the UK will avoid recession

Goldman Sachs, JP Morgan and Morgan Stanley warned of an economic slump after the EU referendum, but the powerful US investment banks, now believe the UK will avoid recession

The humiliating U-turns came as sterling rose above $1.34 against the dollar for the first time since mid-July having fallen from about $1.50 to $1.28 following the Brexit vote.

The change of heart at the banking giants follow a series of upbeat figures suggesting the UK economy is still growing after the vote to leave the EU. The reports have confounded the doom-laden warnings of Remain campaigners – led by David Cameron and George Osborne and widely supported by the banking industry – that loosening ties with Brussels would be a catastrophe for Britain. Mr Cameron had said a Leave vote would put ‘a bomb under the economy’ while Mr Osborne claimed it would cause a ‘DIY recession’.

JP Morgan chief executive Jamie Dimon, a leading proponent of Project Fear, said Brexit would be a ‘terrible deal for the British economy’ and could lead to 4,000 job losses at the bank’s UK operations. It donated £500,000 to Remain. But many analysts – including those who work for Mr Dimon – now believe the outlook is far brighter than previously claimed.

Following the referendum, Goldman Sachs forecast that Britain would suffer a ‘technical recession’. But the bank, which also donated £500,000 to Remain, has now raised its growth forecast for 2017.

‘The downturn in the UK – while still substantial – is likely to be shallower than we thought in the immediate aftermath of the referendum,’ said Goldman Sachs economist Huw Pill yesterday.

Swiss bank Credit Suisse, which did not donate any money during the campaign, has also scrapped its forecast for recession in Britain in 2017.

John Longworth, the former director general of the British Chambers of Commerce who backed Brexit, said: ‘It is becoming increasingly clear that the doom-merchants and architects of Project Fear were some way off the mark.

‘Many of the Remainers predicted there would be short-term Armageddon following a Brexit vote, which has not occurred.’

Morgan Stanley, which donated £250,000 to the Remain camp, said that it was changing its forecasts from ‘Brexit recession to Brexit slowdown’.

‘We forecast a sharp slowdown after the vote to leave the EU,’ said its economist Melanie Baker. ‘But since then, performance has been better than expected.’

Yesterday, Swiss banking giant UBS warned it may cut up to 1,500 jobs in London once the UK quits the European Union.

The bank has previously said that a ‘significant per cent’ of around 5,000 staff in its London offices may be moved abroad.

But its boss, Sergio Ermotti, said ‘probably 20 per cent to 30 per cent’ could be affected.

Speaking to Japanese business newspaper Nikkei, he added: ‘We believe that London will continue to be an important financial centre, although maybe not as important as it is today.’

UBS issued a series of shrill warnings before the referendum which have so far proved wide of the mark. It predicted that up to £350billion could be wiped off the value of FTSE 100 companies within days of the Brexit vote, and that the blue-chip index could crash more than a fifth. After an initial fall the index has risen more than 11 per cent since the referendum.

Ukip MP Douglas Carswell said: ‘The hysteria of these bankers reminds us what terrible judgment our elites have. They were wrong about Brexit. They were wrong about ending boom and bust. Their judgment is almost as bad as George Osborne’s, but unlike Osborne these corporate bankers are still there.’

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