No Early Dash For EMU

Survey assessing support for Britain entering EMU

We continue to doubt that the UK will join EMU before the next election, and put the chances of entry in that period at about one in three.

As Bank of England Governor Edward George has warned, early entry would mean either locking in a painfully high level for sterling against the euro, or accepting a weaker pound that creates inflation pressures. Either route could hit Labour's hard-won reputation for economic competence. Moreover, our latest MORI poll suggests that, while public opposition to EMU entry has fallen slightly since April, it is still roughly two to one against. The high balance of opinion against EMU entry suggests that it would be very hard to win a referendum, and the government probably will not push for a referendum unless it is confident of winning.

Reduced speculation of EMU entry reduces the downside risks for sterling nearterm, and could lead to temporary reinversion of the long end of the bond curve. But, we expect that long gilts will in practice underperform further as investors shift into non-gilt products, while the short end remains vulnerable to the strength of domestic demand and the labour market.

Technical details

Latest polling conducted between 14-19 June 2001.Sample size 1,983 people for latest survey.

Sources: MORI Financial Services and Schroder Salomon Smith Barney

Figure 1. UK - Balance of Opinion Over EMU, 1991-June 2001

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