On Thursday, forex clients of Parisian investment bank Societe Generale (motto: Building Team Spirit Together) received a blunt warning.

"As you know, the UK government will hold a referendum on Thursday, June 23, to decide whether the country will remain a member of the European Union," it began.

"The foreign exchange market is likely to experience very high volatility, along with liquidity gaps and market dislocations around this event ... we may not be able to provide usual levels of liquidity and pricing ... your orders could be filled materially away from requested levels due to potential market dislocation."

In other words: strap in, this could go bad.

The same day, the Bank of England played doomsayer as well – warning of an internal and external economic shock.

Its monetary policy summary predicted that, were the UK to vote to leave the EU, the sterling exchange rate would fall further, "perhaps sharply", in anticipation of "worsening terms of trade, lower productivity and higher risk premia".

Households would defer consumption and firms delay investment, lowering labour demand, lifting unemployment. Indeed, such effects are already evident in recent surveys.

"The outcome of the referendum continues to be the largest immediate risk facing UK financial markets," the bank said – adding that "through financial market and confidence channels, there are also risks of adverse spill-overs to the global economy."

Bank leaders including JPMorgan Chase's Jamie Dimon, Deutsche Bank chairman Paul Achleitner​ and HSBC's Stuart Gulliver have all sounded warnings about the impacts of a Brexit.

There are those who argue just as hard in the opposite direction. What that means is the economic effect of a potential vote to leave the European Union has been one of the most contested battlegrounds of an increasingly bitter campaign.

But beyond its use, and misuse, as a campaign tool, it is already affecting the world – and Australia.

Depress markets

And with polling (albeit unreliable due to the lack of precedent) apparently hovering around a dead heat, there is a very real chance that next Thursday the UK is going to vote "Leave".

The opinion of the markets on the impact of a Brexit is already clear, Professor Iain Begg, from the London School of Economics, says.

Plaid Cymru leader Leanne Wood and former Scottish first minister Alex Salmond MP attend a rally at the Aneurin Bevan statue on Queen Street, Cardiff as they make a case for Wales and Scotland's place within the EU.  Photo: Getty Images

"Any signal that Leave is going to win seems to have a depressing effect on both the pound and the stock market," he says.

Don't pay too much credence to short-term movements, he says. But economic analysis is clear: nearly all of the models of the macroeconomic consequences of Brexit show a long-term loss of GDP for the UK economy.

"The consensus with one or two exceptions is there is no economic gain for the UK," he says. "There's also something of a consensus that the prospects for the world economy and for the European economy are not that great either.

"The UK could act as a shock, of the wrong kind, to the world economy and the European economy. It's a lose-lose."

Hit to GDP

Most recent studies predict a hit to UK GDP from increased uncertainty, higher costs of trade and reduced foreign investment.

The UK Treasury expressed the annual loss per household, after 15 years, as between £2600 and £5200, with the low figure if Britain stays a member of the European Economic Area, and the latter if it is trading under WTO rules.

Brexiters simply don't believe these figures. The "Economists for Brexit" predicted a boost to GDP of 4 per cent. But they built in unlikely assumptions of unaffected UK exports and unilateral free trade.

Former Mayor of London Boris Johnson has downplayed the risks. Photo: Getty Images

Leave campaigner Boris Johnson claims the "corpus of EU regulation" has been a dampener on innovation in the EU. And he rejects claims that companies would flee the City.

"We heard [similar anxieties] 15 years ago, when many of the very same Remainers prophesied disaster for the City of London if we failed to join the euro," he said in a speech last month.

"They said all the banks would flee to Frankfurt. Well, Canary Wharf alone is now far bigger than the Frankfurt financial centre – and has kept growing relentlessly since the crash of 2008."

Trade effect

But Begg says Brexit would put up barriers to one of the main drivers of long-term economic prosperity – free exchange through trade.

Quite simply: "If you make it more difficult for trade to occur then ... you're undermining a source of prosperity".

Illustration: Simon Bosch

Competition, and the ability for countries to specialise in their strengths, suffers.

Johnson also insists Britain has the diplomatic and commercial abilities to negotiate its own free trade arrangements.

But Dr Swati Dhingra​, an expert in trade policy, says it's not that simple.

"A lot of [Brexiters] argue that we can go strike trade deals with all these other countries but I think it's very unlikely those countries are going to prioritise the UK over the [much bigger] European Union. Trade negotiations are all about bargaining power."

Europe unravels?

Begg also fears a resulting "unravelling" of the European project – a political snowball that would keep investment depressed in the longer term.

He draws a distinction between short and long-term effects of Brexit. In the short term, uncertainty will be the dominant factor and that will crimp the economy as decisions about relocation, new products and innovation are put off.

There is edginess about Britain's potential departure. Photo: Getty Images

"As investment is a driver of economic growth, uncertainty would have the same effect as the credit crunch in 2009," he says.

"All this uncertainty would create froth in financial markets and that could easily metamorphose into financial instability of the sort that nobody wants. That's why the Bank of England, the IMF and the OECD have all been issuing warnings about the global financial market effects over what would be an economic shock."

Central banks limited

Begg too declines to buy arguments that this would "blow over".

"Central banks are already at the outer limits of what they can do, interest rates are more or less zero. Easing could be ramped up again but nobody quite knows how much further quantitative easing could go, and many Western governments are pretty constrained on their fiscal policy.

"What's left in their armoury is rather limited. That says to me that the risks are greater than the capacity to respond."

Bank of England governor Mark Carney. The bank has warned of the risks of an exit. Photo: Niklas Halle'n

The LSE's Dr Mareike Kleine​ has a very different view. She suggests the long-term effect of Brexit strongly depends on the "divorce" terms agreed in the post-vote negotiation between Britain and the EU.

She suspects the end result will be like last year's referendum in Greece, where the population voted "Oxi" to an austerity/rescue package, then their government was forced by pragmatic circumstance to accept something very similar.

Freedoms kept intact

She believes a "status quo in different legal terms" will emerge – and so the effect on the UK, EU and world economy will be minimal.

"[The EU] are simply going to offer a 'status quo'," she says.

"Keeping all the 'four freedoms' intact is a very strong preference."

British Prime Minister David Cameron is under intense pressure over the referendum. Photo: Getty Images

These are freedom of movement for goods, capital, services and people. Even though the Brexit referendum was fought on rejection of the latter, she suspects Britain may be forced to accept it.

"I just don't see the EU 27 [the remaining countries in the EU] agreeing to anything else," she says. "It will be a take it or leave it situation where they say access to the single market means freedom of movement or you're completely out.

"The new British government will have to face that and it will tear up the Tories – and ultimately they won't be able to agree on anything else."

The domestic politics of the vote took a shocking twist late in the week with the murder of pro-European Union Labour MP Jo Cox. Campaigning was suspended in the wake of her death.

Germans fed up

Kleine, who divides her time between London and Berlin, says the mood in Germany – which would lead negotiations over Brexit – is one of exasperation.

"The establishment, I think from an emotional perspective they have 'had it' with the UK. They think if you leave we are not going to try to keep you, just bugger off."

Dhingra warns the impacts will reach these shores.

"Australia should expect that one of its biggest trade partners is going to see a decline in economic activity if a Brexit happens – for the EU as well as the UK. The dampening in economic activity is going to kick in before the longer-term structural impact," she says

And she says her analysis is optimistic: it assumes no knock-on effect of further political instability in Europe, with other countries looking to renegotiate their relationship with the union.

"If it does set off a chain reaction then a lot of uncertainty starts to come into play."

Difficult picture

The economic impact is close to impossible to predict.

At a macroeconomic level, the United Kingdom is a moderately important part of Australia's growth story, with goods exports worth $3.7 billion in the 2014-15 financial year, and services exports coming in at $4.9 billion, from a combined global total of about $320 billion.

Adding in imports from the UK worth about $12.5 billion, the country ranks seventh as a trade partner, according to the Department of Foreign Affairs and Trade.

In theory, flows of goods and services into the United Kingdom could suffer if pounds sterling were to depreciate markedly, making Australia's exports more expensive. In the short term, however, both countries' currencies would be driven lower by investors' flight to safe-haven assets such as the yen, gold and US government bonds.

Indeed it is through the currency markets – which are more liquid than most financial markets – that much of the current nervousness about the possibility of Britain leaving the EU has played out in recent days.

Assuming a Brexit, this is set to continue, says Commonwealth Bank's chief currency strategist Richard Grace.

Currency markets are moving ahead of the vote on Thursday. Photo: Jason Alden

Rising against pound

"If the UK votes to leave the European Union on June 23, we believe the pound will initially fall by up to 10 per cent against the US dollar," he says.

For the Aussie, this translates into a 2.5 per cent fall against the greenback and an 8.3 per cent appreciation against the pound.

Subsequent recovery in the pound against a range of currencies will be restrained by flagging growth, rising US interest rates and the UK's large current account deficit, says Grace.

He also forecasts an initial fall in commodity prices, which will directly affect sentiment in Australia and across Asia, where the results of the referendum will first play into markets.

"Global equity and commodity markets would decline sharply as participants extrapolate the extent of the possible spillover for the global economy, not just on the UK economy," says Grace.

Central finance role

He says when evaluating the repercussions for Australia, and the world, of a Brexit, it is important to remember the central role London plays in global finance.

London is a global financial centre. Photo: Bloomberg

"It is worth emphasising that the UK banking system provides a key source of global trade finance and remains the world's largest international financial centre, and has a significant share of EU transactional activity," he says.

"Individual UK institutions would see bank funding costs rise as the UK's financial passport is challenged.

"In this environment, emerging market and commodity currencies linked closely to the global growth outlook, like the Australian and New Zealand dollars, would decline against the yen, Swiss franc and US dollar," says Grace.

Such a depreciation in the Australian dollar, were it to hold, would be good for the domestic economy, which needs export competitiveness in the transition away from resources-related infrastructure growth.

However, any further weakness in commodity prices would erode some of these gains, all else being equal.

UK exposure concerns

A weaker pound against the Australia dollar could also translate into a revenue hit for Australian-listed companies with important UK operations, such as financial services group Henderson.

However, analysts have been at pains this week to stress that none of this is clear cut.

"If anything, it might be a benefit to some companies in the short term," said UBS small companies portfolio manager Victor Gomes​.

"With companies like Henderson, most of their costs are pound-denominated, whereas they have more non-pound revenues than their costs.

"A weakening pound means their revenues could go up," he said.

This rationale has not stopped the shares falling almost 3 per cent on the Australian stock exchange amid this week's broad sell-off.

Bond rally

Conversely, bonds have rallied in investors' rush to safe-haven assets, with the benchmark Australian government 10-year bond yield dipping below 2 per cent for the first time ever and Germany equivalent below zero, also for the first time.

Bonds have rallied, pushing yields to an 141 year low.

Bond yields drop as investors bid up prices, making the current rally look overdone.

"Not so," says a range of experts, who see current market volatility enduring up until the UK referendum, and well beyond if the "Leave" camp wins.

"Bond market participants love to remark that the bond market seems to spot a crisis before the equity market does," says Nikko's global rates and currency strategist Roger Bridges.

"Although that may be the case, it could also be argued that it predicts crises that don't actually occur.

"Whether correct or not, the bond market has been concerned about Brexit for some time, while the US equity market has been rallying, even outstripping other equity markets.

"It is only over the past few days that the US equity market has begun to react to the increased likelihood of a vote for the UK to leave the EU, with sharp falls and an accompanying increase in volatility

"Although bonds look expensive at current levels, they could potentially rally further if the vote goes with the 'Leave' campaign," he says.

Opportunity in uncertainty

Of course, if recent polls showing the Brexiters gaining the upper hand prove unreliable, bonds should sell off and equities should recover in what it is commonly known as a "relief rally".

This, says, Bridges also provides a buying opportunity as prices fall and yields rise. Why? Because there's a lot more to worry about at the moment than just Brexit, including slowing growth and over-indebtedness in China, the US's stuttering economic recovery and European and Japanese policymakers' apparent inefficacy against lacklustre economic activity and inflation.

"In our view, many risks still remain in 2016 with the potential to derail markets and reward fixed income investors," says Bridges.

One of these, says Capital Economics' executive director Roger Bootle​, is the gradual unravelling of the EU if Britain leaves, or even if it remains.

He argues that countries such as Italy, Greece and Portugal have struggled to remain competitive and fiscally responsible within the constraints imposed by the single currency, and could eventually revert to a domestic currency and sovereign central bank.

Greece seriously considered such a plan during last year's debt crisis.

Greece faced a similar crisis in some ways. Photo: Getty Images

A Brexit would also speed up the process, says Bootle.

"We think that at least one country will leave the eurozone before very long, and of course there's a real risk that if the UK votes to leave the EU, then this could cause an intensification of difficulties in the eurozone," he says during a visit to Sydney this week.

Politics central

He calculates that over the long term, the benefits of exiting the EU will neutralise the downside for the UK.

"We'd be very surprised if there is a very major impact on UK GDP from Brexit," he says, adding that markets had overreacted in the lead-up to the vote. If even the Brexiters win, it would be at least two years until the separation was enacted, and that would only happen after the UK had renegotiated the terms of all its important relationships within the EU, he says.

"There will be no immediate crisis if Britain votes to leave," he says.

"A lot of people in the markets will be a bit surprised and disappointed by that.

"I think the biggest reaction is going to be a yawn, because it's going to be a very long time before Britain leaves."

Of more importance, he said, would be the political impact of Brexit on other euro-sceptic nations, particularly Sweden and the Netherlands but also erstwhile champions of the European experiment such as France.

"It's quite possible that we are going to see, if the UK does vote to exit, an intensification of the political crisis in Europe and that could, of course, have economic consequences."

Finally, some argue a silver lining for Australians, if not Australia.

Johnson has made much of the fact that, with fewer migrants allowed from the EU, there will be greater opportunities for those who wish to come from the Commonwealth seeking a job.

But Professor Begg is sceptical.

"There might just be slightly more chance for an Australian post-Brexit [to find work in the UK] than there was previously," he says.

"I'd put it as a very, very marginal effect."