The draft EU deal published last week has left the “Brexit” referendum looking likely to occur in June this year. What’s more, on the basis of the latest polls, it looks set to be a close vote. That said, we doubt that Mr Cameron’s deal changes either the prospects for the UK economy, or the likely outcome of the referendum itself.
Granted, the referendum could end up delaying the first rate hike by the MPC. In fact, speculation of a rate cut has recently resurfaced. Nonetheless, despite the overall dovish tone of last week’s Inflation Report, we think rates are still likely to rise much sooner than is currently implied by market expectations.
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