EMU: Sentiment Still Against, but ...

Our latest poll shows a modest rise in support for EMU entry (see page 2 of full report). But the split shows a sharp rise in support for EMU entry among the low-income DE social group, which previously was the most consistent part of the population in opposing EMU entry.

We put the chance of EMU entry in the next four years at about 33%. The next two to three quarters will be the key period. If public opposition to EMU entry falls markedly in that period, then the government will probably launch a stronger pro-EMU campaign and go for a referendum in late 2002/H1-2003. This risk will hang over sterling and long gilts in coming quarters.

As argued last week, the MPC is likely to cut 25bp at the November meeting. With the worsening fiscal position, Issuance of gilts is likely to rise markedly in the next couple of years, in contrast to the US Treasury's decision to suspend issuance of long bonds (see page 5 of full report).

Technical details

Latest survey was conducted between 25-30 October 2001. Sample size 1,933 people for latest survey, and similar for earlier results.

Sources: MORI Financial Services and Schroder Salomon Smith Barney

Figure 1. UK - Balance of Opinion Over EMU Entry, 1991 - Oct 01