EMU tracking poll, January 1999

We have lowered our forecast for gilt yields and the gilt-bund spread. We now expect gilt yields to fall below 4% in coming months, with the gilt-bund spread down to about 15bp on a 12-month view.

The flat economy and lower inflation will allow UK base rates to fall to about 4.5% in late 1999 or early 2000, lower than markets expect. Moreover, the UK is more likely than markets expect to join EMU in 2001-03. Our latest MORI poll shows a sharp drop in public hostility to EMU, close to the mid-1998 low. Finally, this year's likely overshoot in the budget surplus will cap gilt issuance in 1999, hence limiting the speed with which the richness of long gilts fades.

The evidence in the fourth-quarter GDP data and the British Chambers of Commerce survey that the overall economy remains weak -- albeit with slightly less gloom than before in manufacturing -- probably will allow another 25bp rate cut in February.

UK -- Balance of Opinion for the Question "If there were a referendum now on whether Britain should be part of a single European currency, how would you vote?", 1991-Jan 1999

Economic & Market Analysis - Sterling Weekly [pdf format - 73K]

Technical details

Latest survey was carried out between 14-20 January 1999. Sample size 1,899 people. A national representative sample was used and the survey was carried out by face-to-face interviews in the respondent's home.