Robert Blews, 28 April 2016

On Thursday 23 June, Britain will hold a referendum on whether they should remain in the European Union. Whether the outcome is yes or no, implications for the pound are significant, in our view.

We expect the outcome to have minimal impact on the UK market, which is dominated by large multi-national corporations that derive most of their profits offshore. However, the vote has much more significant implications for the pound.

Current opinion polls suggest a tight race, although most are showing a slight advantage for the UK to remain a member. Some observers believe that UK betting odds have a better track record of predicting such events, and at present these are more strongly in favour of the UK staying.

Investment implications

  • On current information, the most likely outcome is a vote to remain in the EU. However, should stresses in the European economy or financial system increase, sentiment could change quickly.

  • Regardless of the outcome of the referendum, we think the medium-term outlook for both the UK market and the pound is challenging. In our view, the pound is likely to weaken against all major developed market currencies.

  • A vote to leave the EU would most likely lead to a temporary halt in foreign investment in the UK, resulting in a sharp depreciation of the pound against all major currencies.

  • A vote to stay in the EU would considerably reduce investor uncertainty and result in a short-term rebound in the pound.