Just over a week ago, the chance of Leave winning the referendum was merely 22 per cent according to a prominent betting exchange. Meanwhile, at the time, one pound was worth $1.455 on forex markets.
Yesterday, the same betting exchange rated the probability of a Leave vote at 40 per cent, thanks to a series of polls that are increasingly pointing towards Brexit. Accordingly, one pound is now worth little more than $1.41.
Despite Tory MP Andrea Leadsom’s attempts to play down fluctuations in sterling, the message from trading floors is clear – investors are worried about the prospect of the UK splitting off from Brussels, and are moving away from the pound, and away from risky assets.
The Leave campaign has benefited from a renewed focus on anti-immigration sentiment. It has been unpleasant to watch, and has suffered from the statistical exaggerations that have unfortunately marred this referendum debate (earlier this week, fact-checking economist Jonathan Portes calmly demolished a preposterous claim by Iain Duncan Smith that immigration had cut wages by 10 per cent). The Remain camp has hardly been robust itself, publishing a string of hyperbolic warnings over the likely economic impact of Brexit.
The economy would undoubtedly take a short-term hit from a Leave victory, at the very least as a result of the dramatic uncertainty that would haunt markets and cause business leaders to think very carefully before signing off on investment or expansion projects. The long-term economic effect is more complex, however. Would the UK, post-Brexit, turn into a tiger-like, outward-looking free trade growth machine, or an isolated state prone to reactionary protectionism? The truth is inevitably somewhere in between – but before casting their ballots, voters may wish to consider where we might end up on that spectrum.
The final week of campaigning will, if anything, be even less edifying than the spectacle we have witnessed so far. Senior figures in both camps are fighting for their political lives; expect more sniping, and more fear-mongering. For market participants, it may be a question of determining which scare-stories have the strongest impact on voters – and which are dismissed as fanciful.