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The idea of a Brexit is firmly front and centre for UK investors following the unexpected decision from London mayor Boris Johnson to throw his hat into the ‘out’ campaign.
This has introduced a political element to the topic, with many seeing this challenge to David Cameron as a means to stake his claim for Number 10. With exactly four months until the referendum, it is worth understanding the issues at stake here and what this could mean for financial markets.
In the May 2015 elections, David Cameron swept to a surprise majority victory, pledging to renegotiate the UK’s relationship with the EU before holding a referendum on continued membership. The conclusion of those negotiations last week saw a somewhat mixed response, with Mr Cameron failing to fully achieve many of his goals from negotiations. Certainly there was an aspect of having to aim high to allow for almost certain pushback within negotiations.
The main reforms approved within the deal are as follows:
- Limits on in-work benefits to migrants upon the imposition of an ‘emergency brake’ – this could even be judged as illegal discrimination by the European Court of Justice
- Child benefits to be determined according with costs of their residential country
- UK exempt from ‘ever closer union’
- Safeguards for non-eurozone countries
The question is whether this really allays the fears of those seeking to leave the EU. The reaction from those within the ‘out’ camp suggests not, with polls showing a clear shift towards exiting the EU. The IG binary market currently indicates a 33% chance of a Brexit.