With prime minister David Cameron expected to announce the date for the vote soon, possibly at the EU summit this week, some investors are predicting a rocky ride for sterling in the currency markets in the next few months.
“We need to be prepared for a choppy market,” said James Maltin, investment director at wealth manager Rathbones. “The Brexit debate may be about to heat up. It is yet another uncertainty out there that could hit the UK markets.”
Some analysts fear a potential Brexit could spark a recession, with Nomura, the Japanese bank, warning that the pound could fall 10 per cent to 15 per cent if overseas investors prove unwilling to finance Britain’s current account deficit.
Mark Carney, governor of the Bank of England, warned in January that concerns about Britain’s exit from the EU could test “the kindness of strangers” that the country relies on to fund its hefty current account deficit with the rest of the world.
Britain has a relatively large current account deficit of 3.7 per cent of gross domestic product. The worry is that overseas investors, which hold £427bn in UK government bonds, or a quarter of the market, might start to sell, putting further pressure on the pound.
Read more: Brexit fears stalk currency markets ahead of EU summit - FT.com