The referendum which can change the economic landscape of the United Kingdom is on the horizon. The referendum or Brexit is to be held on Thursday, June 23rd and will determine whether the United Kingdom should leave and or remain within the European Union. The referendum allows all citizens within the United Kingdom that are of voting age the opportunity to vote either Yes or No to remain within the European Union.
The United Kingdom’s Prime Minister David Cameron has demanded several reforms from the existing twenty-seven European Union members which he has stated is imperative for the United Kingdom to remain a part of the European Union. It is important to note that the size of the twenty-seven European Union nations is collectively seven times the size of the population of the United Kingdom. The items which Prime Minister Cameron is looking to address are; that there will be no discrimination by the present nineteen Euro zone states against the countries (nine) which includes the United Kingdom that do not use the Euro, clarity/confirmation that the European Union’s commitment to what is described as an ever closer union doesn’t impose any form of obligation to create a federal European State, a lightening of the regulatory burden on business & restrictions on workers from another European State claiming benefits in the United Kingdom.
There have been numerous statistics which have been documented on the potential Brexit from the European Union. The Open Europe’s report states that the United Kingdom’s Gross Domestic Product (GDP) could possibly be 2.2% lower in 2030 if the United Kingdom decides to leave the European Union. When quantifying the numbers the best case scenario for the United Kingdom if they left the European Union associated to Gross Domestic Product was that the United Kingdom enter into liberal trading agreements with the European Union along with the rest of the world and attempt to deregulate at home. Under this scenario the loss to Gross Domestic Product would only be 1.6% by 2030.
The British pound has been under pressure over the past month as investors prepare for the referendum vote on June 23rd. Recent polls have shown that the Yes vote has outweighed the No vote by a 46 to 44 per cent. Polls have showed a 1 percent rise compared to the previous week. However, when surveying a large group of individuals many have indicated that they were uncertain on which way they would vote on June 23rd. According to the ICM survey, when those that are undecided is removed from the survey there is a 51 to 49 percent of the population wanting to remain part of the European Union. Until the Brexit factor is removed the GPB/USD will remain soft. The fear alone that the United Kingdom will depart from the European Union will continue to test the British Pound going forward. In addition, over the last week there has been quite a bit of pressure associated to the EUR/GPB. Ultimately, with the fear that the United Kingdom will leave the European Union the belief is that the Euro will remain and continue to be stronger than the Pound.
In closing, with the looming uncertainty and fear that the Brexit may materialize, the United Kingdom along with the British Pound will continue to sustain currency pressure. As the June 23rd referendum date looms and United Kingdom citizens continue to flip flop the British Pound will remain erratic. Although polls have showed that there is a desire to remain part of the European Union as long as there is uncertainty, pressure on the Pound will remain consistent.
