Vive la Revolution
2017 is a critical year for European politics not to mention the triggering of Article 50 and Trump.
Here we take a look at the potential impacts of the upcoming EU Referendum on the Pound.
The risk of a Brexit is already having a major influence on Sterling exchange rates, with the risk a leave vote could send the Sterling currency tower toppling over.
The best case scenario for the Pound, the currency should rally on a return to the status quo.
This is the expected scenario at the time of writing both with the Investec Economics team and the bookmakers. But what if…
Keep removing the blocks down to find out more.
As a large trade partner of the EU, in this scenario the UK manage to negotiate better terms out of the EU than inside.
The best case ‘leave’ scenario, but even in this circumstance, due to the time needed for negotiations a further Sterling fall seems unavoidable on an out vote…
A lot of focus in currency markets is around the size of a potential Sterling fall if the UK were to vote themselves out of the EU.
What is worth remembering is a very large Sterling fall could actually spur imported inflationary pressures, turning the BOE potentially more hawkish and slowing the move.
That said, a huge FTSE fall could see reduced wealth effects reduce consumption, and certainly the prolonged uncertainty could harm investment sentiment.
So the UK may leave, and the Pound may initially fall, but this could be a multi-year negotiating process, and once the dust has settled there could be some recovery.
The UK may see very little actual change until some way down the road bar the political battle in the press, as terms of trade should remain in place for at least two years.
And at some point the negative impacts of the UK leaving would hit the Euro as well as the Pound.
If the UK voted to leave the EU, UK PM David Cameron may resign. The Chancellor may lose favour. Who will lead the negotiations?
Would Tory infighting bubble to the surface at a time when the UK would need political solidarity and strength to negotiate the best possible deal?
An out vote could lead to yet another referendum, this time a second Scottish independence vote.
In a scenario where Scotland vote to stay in the EU but the UK as a whole vote to leave, Scotland may again call for an independence vote.
The risks would really start building up on the Pound under this worst case of scenarios, and continued uncertainty could see the Pound crumble under the pressure.
The EU Referendum is a complex subject, and things are changing all the time so keep up with the potential impacts with our daily insight or give us a call on
0800 055 6339 for further information.