The UK pound fell against the euro as traders await the Bank of England’s final policy meeting today before Britain votes on its membership to the European Union. As of 08:00 GMT this morning, one UK pound exchanged 1.2553 euros, or 0.49% lower (GBP/EUR). The current 14 day average GBP/EUR exchange rate adjusts to 1.27.
The Bank of England’s Monetary Policy Committee will meet at 12:00 GMT today in London, when it will likely discuss Brexit and also other factors that affect the UK’s economy. While no economists are forecasting a change in policy, markets are pricing in a greater chance of an interest rate cut than an increase in the future as the risk of Brexit rises.
Separately data has been offering a mixed picture of the UK economy. Reports this week showed inflation holding at 0.3%, the unemployment rate unexpectedly falling and wage growth accelerating. UK unemployment rates fell to 5%, according to the latest data, and UK employment stands at a record figure of 31.6 million.
Next week’s Brexit referendum has dominated the currency markets with volatility surging on the pound and euro as polls suggested a lead for the Leave campaign this week. Last month the Bank or England’s Governor Mark Carney said that Brexit could lead to a recession in the UK as the central bank downgraded its growth forecasts.
Brexit and UK Banks
Meanwhile, British bank shares are likely to fall sharply if there is a vote for Brexit next Thursday and dividend payouts to shareholders would be axed, according to a forecast by City analysts. Banking experts at investment management and research group Bernstein said Barclays would be hardest hit, falling 40% over 18 months.
The share prices of Lloyds Bank and RBS could take a hit of 35% and 25% respectively, according to the analysts research. Shares in HSBC which has warned it would move jobs to France if the UK voted to leave the EU, could fall by between 15% to 20%.
Even after considering the economic slowdown, negative interest rates and fragile financial markets, shares of UK based banks in the FTSE 100 are down 36% on average in the past year. Since the recent highs in May, shares have gone down again as surveys on average point to strength for the Leave campaign.
Over the pond, Deutsche Bank Chairman Paul Achleitner has become the latest global banking leader to warn about the potential fallout if UK voters decide to leave the European Union. “A Brexit win on EU membership would be an economic disaster for the UK and a political disaster for the EU.” Achleitner said at a dinner Wednesday night in New York hosted by the American Council on Germany.
Deutsche Bank Chief Executive Officer John Cryan said last month the bank would probably move some trading activities if a Brexit vote prevails.