The MPC’s attempt to base its forecasts on the UK remaining in the EU suggests that it believes trade-weighted sterling will rise by around 5% on a vote to stay. But it also implies that it doesn’t think that interest rate expectations will be affected. However, we think that interest rate expectations will rise on a vote to remain and that the MPC will begin tightening monetary policy in November.
Meanwhile, if the UK votes to leave the EU, we agree with the MPC that sterling will probably fall sharply. But we don’t think that a Brexit would result in a cut in interest rates. Instead, it would just add to the argument for rates to remain on hold for longer.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services