EU Referendum & Bank of England mins

23 January, 2013

Tom Arnold

Today could be a critical day for the Pound and its likely market positioning in the coming weeks and months. The much anticipated speech from David Cameron on the UK and its continued EU membership is due this morning, with many analysts expecting the announcement of a commitment to an in/out referendum on the UK’s continued membership by 2017. The possibility of the UK slipping out of the EU is considered extremely bad news for the UK economy, and also incredibly bad news for the world economic climate as well – the UK might not be the size of the US or the Eurozone, but is one of the world centres for finance and business generally, and the EU provides a massive proportion of our overall GDP.

This is potentially huge news and fears of this coming to pass, coupled with the recent run of worse than expected UK data is the main reason we have seen such declines in the Pound’s value in the last couple of weeks. Our regular readers will know the markets often move more on rumour ahead of the actual fact, and as such don’t necessarily expect a dramatic drop if he does announce this referendum, it is in fact more likely that it has already been ‘priced in’. If he doesn’t though, a sudden rise could be expected as the pricing in unravels.

Due to the delay in the speech though, I think much of the content has been leaked and therefore the rumours are probably true this time!

The second big UK news of the day will come from the Bank of England’s minutes, which are also released this morning. Focus will be very much on any comment about further Quantitative Easing. With the markets very much fearing Friday’s GDP figure and the chances of the UK potentially slipping into a triple dip recession, the Bank might be forced to restart their QE programme, and while this is UK economy positive, it is very much Sterling negative, as further QE can only dilute the Pound’s value.

In this critical time for the Pound, make sure you keep in close touch with your CI account manager to keep abreast of developments.