UK: Domestic political developments increase Brexit risk - MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the Pound weakness remains relentless early this year ahead of the EU referendum.

Key Quotes

“The BoE’s trade-weighted measure of the pound has declined sharply by around 11% over the last five months reversing almost two thirds of the advance recorded in the prior two and a half years. The latest political developments in the UK have further increased the risk of Brexit by potentially undermining the popularity and authority of Prime Minister Cameron’s leadership.

Previous public opinion polls had signalled that support from Prime Minister Cameron for the UK to remain in the EU was viewed as a potentially important factor which could sway voting intentions. There is a risk now that the Remain campaign has been weakened which potentially could make the EU referendum even more finely balanced.

The BoE have signalled that they are comfortable to leave policy unchanged until after the EU referendum when they will be able to better asses the outlook for the UK economy.”