Pound Sterling (GBP) Forecast Uncertain as EU Referendum Debate Promises to Bring 'Leave' Arguements

May 26, 2016 - Written by John Cameron

STORY LINK Pound Sterling (GBP) Forecast Uncertain as EU Referendum Debate Promises to Bring 'Leave' Arguements

The remaining weeks before the EU Referendum vote could see the Pound dip, due to an increased likelihood of 'Brexit' arguments being made due to the arrival of Purdah.

The Pound has lost out against its rivals in a major way today, owing to the latest UK business investment stats for the first quarter showing a -0.5% drop off on the quarter and the year.

GBP Exchange Rates Record Further Gains on Falling Brexit Bets

The Pound Sterling (currency : GBP) continued to trend strongly higher against all of the other major global currencies during yesterday’s session.

The near-term move Northwards for Sterling was triggered by the publication of an opinion poll by IPSOS Mori a week ago suggesting that the ‘Remain’ campaign enjoyed a hefty 55% / 37% lead against the ‘Leave’ campaign. Investors have flocked to price-in an increased percentage chance that the UK will be staying in the European Union after 23rd June’s popular vote.

Polls Suggest Win for 'Remain' Campaign in EU Referendum, Pound Sterling Boosted

Further evidence supporting the theory that the ‘Remain’ campaign will win the day emerged yesterday when the Institute of Fiscal Studies (IFS) issued a report warning that a vote to ‘Leave’ the EU could bring an extension and possible deepening of Austerity in Britain.

Paul Johnson, Director of the IFS noted that, ‘there is an overwhelming consensus among those who have made estimates of the consequences of Brexit that it would reduce national income in both the short and long runs. The economic reasons for this – increased uncertainty, higher costs of trade and reduced foreign direct investment – are clear.

He went on to observe that, ‘our estimates suggest that the overall effect of Brexit would be to damage the public finances. On the basis of estimates by NIESR, the effect could be between £20bn and £40bn in 2019–20, more than enough to wipe out the planned surplus. In the long run, lower GDP would likely mean lower cash levels of public spending.’

Wrapping up the current situation, Johnson stated that, ‘to put this in context, dealing with the public finance effect would require at least an additional one or two years of ‘austerity’ – spending cuts or tax rises – at the same rate as we have experienced recently to get the public finances back to balance.’

Will GBP to EUR, NZD, AUD Exchange Rates Extend Gains this Week?

However, ‘Leave’ campaigners were far from convinced by the IFS’s findings; prominent ‘outer’ Nigel Farage was quick to point out that the IFS is part-funded by the European Union so their opinion was loaded. The forecast for the Sterling remains positive, nonetheless.

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