21 06 2016

Will the UK leave the EU? Keeping track of the polls, bookmaker odds, and the financial markets

The UK’s membership of the European Union is the biggest unknown of the year, affecting everything from politics to financial markets. But how can you tell which way the referendum will go? Here are the three things you should be looking out for: How do people say they’ll vote?

Polls aren’t always reliable. As we know from the last general election, they don't always reflect public opinion. That's because pollsters only survey a tiny fraction of the population - and people are unreliable. Some lie, some will change their minds, while others may never vote at all.

Despite this, they’re still one of the best gauges we have as to how the British public will vote in the forthcoming referendum on EU membership.

Of the dozens of polls released since the start of the year, the results have been mixed. Yet in recent weeks, several results have suggested that the UK will vote to withdraw from the political union.

If you look at a poll of polls - which takes the average of a group of polls - what was a clear lead for the remain camp has been eroded. However, support for leaving the EU has only recently been coming out on top.

It's also worth paying special attention to how polls are conducted. Are people being asked to complete online surveys, or are they being called over the phone? Historically, the latter may more accurately reflect what happens in the polling booth.

The difference in outcomes between online and telephone polls was illustrated well in the general election last May, when pollsters suffered a reputational knock after the Conservatives won a large majority, despite surveys indicating that the race was too close to call.

If you took those surveys and excluded the online polls, the result would have shown that the Conservatives were set to perform strongly. So far, phone polls on Britain's membership of the EU suggest more people will vote to remain in the EU.

So why the big discrepancy? Because online polls tend to attract people who are far more invested in politics than the normal voter, and those people tend to have much stronger opinions on the EU.

Pollster ComRes says: "At a referendum, there is a much more low information electorate, making any polling about the issue particularly sensitive to differences in the political engagement of the sample being surveyed.

“This engagement gap makes little difference if you are responding occasionally about your opinions of satellite TV or your favourite chocolate bar, but on controversial subjects like the EU, where a minority hold their opinions strongly and the rest are less committed, it can make a crucial difference.”

Stephan Shakespeare, the founder of YouGov, which uses online polling, argues that respondents to phone and face-to-face polls are more likely to engage in “social satisficing”.

Those interviewed may tell the pollster what they think the interviewer wants to hear, rather than what the respondent actually believes.

As the EU referendum is “strongly correlated with social liberalism”, says Shakespeare. The best polling methodology involves the least psychological pressure to appear liberal, he suggests.

What odds are the bookies offering?

Polls might tell you how individual people intend to vote - but gambling odds will give you an idea of how people think the referendum will be decided.

This is a good example of putting your money where your mouth is. Punters are flocking to exchanges offered by all the big bookmakers, such as Betfair, Coral, Ladbrokes and William Hill.

Data from Oddschecker, which compiles odds from all the main bookies, have suggested that the remain campaign is firmly in the lead.

That lead has been falling, however, as more recent polls have seen the pro-Brexit camp have performed more strongly.

Alex Tabarrok, a professor of economics at George Mason University, equates making a bet with a tax on lying. Gamblers have a strong incentive to look past their biases - because they will lose money if they do not.

“A properly structured bet is the most credible guarantor of rigorous disinterest,” Tabarrok says, adding that it is a “just tax”, a tribute paid by those who make false claims, to those with genuine knowledge.

However, as economist Noah Smith points out, bets don't always reveal people's beliefs. Sometimes people bet because they enjoy posturing, or to benefit their own egos.

What do financial markets suggest?

On the day of the vote itself, as well as in the run up to the referendum, sterling’s strength will be a crucial indicator as to how people will vote.

Kit Juckes, a strategist at Societe Generale, says that the pound is already "suffering from pre-referendum nervousness", as polls still show that a large number of voters are undecided on the referendum question.

The pound is expected to fall against other currencies if the public does choose to leave the EU, reflecting the economy’s large current account deficit.

Described as “very high” by Mark Carney, the Bank of England’s Governor, this deficit - the size of the gap between money flowing in and out of the economy - could put heavy downward pressure on the pound in the event of Brexit.

Figures compiled by Iain Clark, of Efficient Frontier Consulting, and Saeed Amen, of Thalesians, suggest that investors are betting on the pound falling to around $1.20 if voters choose to leave. Conversely, the money managers expect the currency to rise to around $1.47 if the UK votes to remain in the EU.

Other factors that have depressed sterling include expectations that the Bank of England will delay an interest rate rise and slowing economic growth in China - the world's second largest economy.

Economists at JP Morgan believe that credit markets are pricing in a 28pc chance of Brexit. However, the investment bank's estimate has been as high as 51pc.

To construct their estimate from market prices, the Wall Street bank assumed growth would fall to zero after a vote for Brexit, as opposed to the quarterly pace of 0.6pc it has pencilled in if the UK chooses to remain within the EU.