Sterling will fall against the dollar and the FTSE 100 will slip back as the UK edges closer to the EU referendum, a dozen leading economists and market analysts have told City A.M.
With the pound shooting up and crashing down in response to every new piece of referendum news – especially the opinion polls – markets are pricing in unprecedented levels of volatility after the vote. Whatever the outcome, experts believe sterling will respond.
However, a group of 12 experts from think tanks, currency brokers, investment companies and business groups polled by City A.M. have predicted the pound will fall more than three per cent in the run-up to the vote alone.
City A.M. poll: Sterling-Dollar exchange rate on 22 June
The group predicted the pound will close at $1.40 on 22 June – the day before the vote – a three per cent fall over the next 13 days.
Douglas McWilliams, president of the Centre for Economics and Business Research (CEBR) was the most pessimistic, predicting the pound would plunge to $1.37, while CMC Markets’ Michael Hewson was the most optimistic, expecting the pound to hold up at $1.45.
City A.M. poll: Sterling-Euro exchange rate on 22 June
The stock markets have proved less susceptible to wild gyrations in response to referendum news. However, the average guess is that the FTSE 100 will drop by around 120 points – two per cent – in the next two weeks to close at 6,060 on 22 June. The range of estimates for where the index will end up was between 5,890 (Madsen Pirie, Adam Smith Institute) to 6,313 (Jeremy Cook, World First).
The consensus view is that Remain would eventually come out on top, with only two of the 12 forecasting the Leave side to secure the most votes on 23 June. However, it is predicted to be a close-run fight, with the median guess that Remain would win by a margin of 54 per cent to 46 per cent.
City A.M. poll: FTSE 100 close on 22 June
Simon French, chief economist at Panmure Gordon, said he expected volatility to rise ahead of polling day as "markets have been complacent in recent weeks".
He added: "Migration is Remain’s Achilles' heel and I expect Vote Leave to leverage this effectively. UK market volatility is set to pick up against this backdrop."
Madsen Pirie of the Adam Smith Institute agreed that volatility will jump, especially if the Leave side looked like they can triumph: "As it becomes clear that Brexit might win, people will sell pounds and UK shares to hedge against an anticipated short-term drop in both".
Michael Martins of the Institute of Directors advised to "watch out for bellwethers like manufacturing output and hiring and investment decisions, along with youth labour market statistics which are often the first to feel the pinch during economic uncertainty".
Some, however, believed volatility had run its course and expected the markets to remain calm before 23 June.
"The market expects volatility to rise from current levels, but I don’t foresee any big surprises before the vote. The arguments are well worn and much of the fear is already factored in," said Adam Laird of Hargreaves Lansdown.
Diego Zuluaga of the Institute of Economic Affairs said he expected the Remain side to streak ahead as the vote approaches, which should hold back any sustained increases in volatility.
The brave forecasters: In full
|Douglas McWilliams, CEBR||$1.37||€1.27||6,000|
|Madsen Pirie, Adam Smith Institute||$1.385||€1.19||5,890|
|Diego Zuluaga, Institute for Economic Affairs||$1.39||€1.25||5,970|
|Michael Martins, Institute of Directors||$1.39||€1.25||5,950|
|Russ Mould, AJ Bell||$1.40||€1.26||6,200|
|Simon French, Panmure Gordon||$1.40||€1.28||6,050|
|Andy Parsons, The Share Centre||$1.41||€1.24||6,088|
|Samuel Tombs, Pantheon Macroeconomics||$1.42||€1.27||6,100|
|Jeremy Cook, World First||$1.425||€1.298||6,313|
|Adam Laird, Hargreaves Lansdown||$1.44||€1.29||6,210|
|Michael Hewson, CMC Markets||$1.45||€1.31||6,070|