EU Referendum How Will It Impact FTSE?

EU Referendum How Will It Impact FTSE?

EU In/Out

Impact of the EU referendum on the FTSE 100 and other financial indicators

Evidence is growing that the uncertainty over the outcome of the EU referendum is having an impact on the UK’s financial markets. Whether the UK people will vote to remain in the EU or leave it on June 23 is still very uncertain. While some opinion polls still put Remain ahead, two polls on June 6 gave Leave a lead of four and five percentage points respectively. Spread betting company IG still thinks it is most likely the UK will vote to stay, but now puts the probability of Brexit at more than 30% for the first time.

On the day that polling organisations ICM and YouGov announced these results, sterling fell to a three-week low against the US dollar, while other currencies from G7 nations (such as the euro, the yen and the Canadian dollar) all rose or remained static against the US dollar.

The yield on 10 year gilts (government backed debt securities) also fell on June 6 to its lowest level in four months.

However, the FTSE 100 – the index of share prices of the UK’s largest companies – actually rose slightly on the day these two opinion poll results were announced. This could suggest that either the markets still do not expect a vote to leave, or that they are not overly concerned about its impact. After a few brief falls along the way, the FTSE is now at a similar level to six weeks ago.

It remains to be seen how the FTSE will react come June 24 – will prices rise following a vote to stay in, or could they plummet after final confirmation that the UK is to break its ties with the EU?

There have also been reports of investors selling shares in housebuilding companies. Members of the Government that support Remain have also claimed that vote to leave could increase unemployment, reduce house prices and send the UK economy into recession.

Supporters of Leave though maintain that exiting the EU will be to the UK’s long-term economic benefit, even if there is some short-term uncertainty.

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