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Buckingham Palace and the Bank of England weigh in on a Brexit

GBP Falters as Uncertainty Thrashes European Markets
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March 14, 2016 By: , No Comments

Brexit Talk from Downing Street to Main Street

Both camps in the highly-charged Brexit discussion are staking their positions and building a groundswell of support. Such is the importance of this divisive issue that everyone from Main Street to Downing Street has something to say about it, including the Governor of the Bank of England, Mark Carney and her Majesty Queen Elizabeth II. Although headlines to the effect that the ‘Queen backs Brexit’ were denied by Her Majesty, tongues are wagging. There are pros and cons to remaining in the European Union, or leaving it. For starters, the ‘exit camp’ is in favour of British sovereignty and control over its borders, finances and social issues. Those who support remaining in the European Union routinely cite the benefits of free trade, the collective bargaining power of the EU et al. However on both sides there is tremendous volatility when it comes to the ramifications of a British exit – a Brexit – from the European Union.

 

Just recently, one of the U.K.’s pre-eminent spread betting enterprises – Sporting Index – posted markets for the Bremaining camp and the Brexit camp. The former category refers to Britain staying in the European Union. While it is still early days, spread betting enterprises offer a gauge of public sentiment on this contentious issue. The UK Electoral Commission will allow the campaigns to officially move forward on Friday, 1 April 2016. For now though, spread betting enterprises are working alongside political pundits and statisticians to provide the UK populace and Europeans with a test on where everything stands. As at Wednesday, 9 March, the odds were 54% in favour of remaining in the European Union and 46% in favour of leaving the European Union. The 8-point spread is fairly typical with major spread betting enterprises across the UK.

 

Technology Companies at Risk

Various sectors are at risk if the UK decides to leave the EU. Foremost among them are financial technology firms. The seed capital that is an essential component of the technology sector could come under pressure if the UK leaves the EU. Cities like Paris and Frankfurt are central to raising capital for the U.K.’s technology sector. Any impingement on the free movement of goods, services, capital, entrepreneurship and people will naturally impact upon the profitability of the technology sector. In fact, Britain’s financial technology sector leads the world with as many as 60,000+ people employed in this sector. European capital is largely responsible for financing London as the world’s FinTech hub. Any disruption to the free flow of capital and expertise will naturally adversely affect London’s ability to compete at the highest level. The displacement of London would likely give rise to the dominance of Berlin in this regard.

 

Concerns for the Sterling

Of course there is always collateral damage when there is volatility on the political front. And in the case of the June 23 referendum, it is none other than the sterling. The GBP took a pounding in the FX markets against a basket of currencies of late. It dropped to its lowest levels against the USD in several years, but gained a smidgen of stability on the back of comments made by the Bank of England governor Mark Carney who favours remaining in the European Union. High volatility remains however as momentum continually shifts back and forth between both camps. The general consensus is that the UK is likely to remain in the EU, although this has not assuaged market participants from speculative behaviour. Another issue that has many investors concerned is that of existing and future economic agreements between the UK and its European partners which may be jeopardized with a yes vote to a Brexit.

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