There are two sides to the debate on whether Britain should stay in or get out of the EU. Few people are sitting on the fence when it comes to the so-called 'Brexit' but whichever side we choose, what are the tangible, practical effects that a Brexit could have on the financial community?

The impact on sterling

Businesses that rely on the steady sterling rates are in for a rough ride because it's not just the prospect of a leaving the EU that could push the pound down, but the continued uncertainty until a decision is made. According to Simon Smith, director & head of research at FxPro, the UK is likely to keep interest rates on hold into 2017 due to uncertainty in global financial markets, regardless of the outcome of a referendum on Britain's place in the EU. However, Smith argues that the value of sterling in relation to other major currencies is dependent on the dynamics of foreign investment in the UK and UK investment abroad. Being outside Europe could deter investment flows into the UK. US investors are of particular concern because they held 45 per cent of shares as of the end of 2014. If US interest rates rise again this year, while a UK referendum is confirmed, Smith believes this could push the value of sterling downwards.

Will Brexit mean less regulation?

A common argument in favour of leaving the EU is that Brussels red tape is strangling the potential of Britain's small businesses, which could affect employment and pensions. The New Statesman suggests that it could in fact lead to more regulation, not less. The Norwegian model could mean having to deal with more bureaucracy as a result of being outside the EU but inside the European Free Trade Association (EFTA). And if the EU is viewed primarily as a union for facilitating trade across European borders, then ending that privileged trading relationship could well be damaging for British companies and could result in more bureaucracy.

Trade

According to a report by ING, a Brexit raises clear risks for trade and investment and, by implication, growth and jobs. Further integration of the single market could increase trade for SMEs, while an 'out' vote would mean a period of considerable uncertainty, which is always bad for business. The EU is the UK’s most important trade partner, accounting for half of all UK exports and imports. UK exports to the EU correspond to almost 15% of GDP. The EU consists of a population of 500 million, which is a huge consumer base that no British company would want to lose. Putting this amount of trade in jeopardy would mean a significant disruption to revenues and cash flows for UK companies exporting to Europe. The UK would no longer benefit from lower trade tariffs with the EU or from those between the EU and other countries, such as the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US.

London as a financial trading hub

London is Europe's leading FX hub. Tim Focas, financial services director at city think tank Colloquium, writes in a blog post that London’s FX traders currently buy and sell more than twice as many euros than the entire eurozone and more dollars than the US. Britain leaving the European Union could put this position at risk. However, Focas points out that Switzerland is also outside the European Union and yet it remains an important power on the world stage. The Swiss franc is a reserve currency, along with US dollar, Canadian dollar, euro, sterling and yen. The implication is that Britain would do just as well if it were no longer in the EU.

UK economy

According to a May 2014 report by the Centre for Economic Performance (CEP), part of the London School of Economics (LSE), the UK could face trade income losses if it leaves the EU of around 3.1% of GDP (£50 billion) in the worst-case scenario or 1.1% in the optimistic case (£18 billion).