HSBC sees large gains for pound if 'yes' vote wins in referendum

Brokers weighed in with their views on Monday on the likely implications Brexit would have, just as Westminster and Brussels were expected to begin thrashing out the details of the 'new settlement' they would present to British voters.

Britain was heading into a critical two weeks, HSBC said, with the European Council expected to decide on whether or not to give its approval to the draft for the new settlement presented by Eurogroup president Donald Tusk in just under two weeks´ time, between 18 and 19 February.

On 2 February, Tusk and Prime Minister David Cameron unveiled the draft to rather mixed reviews in the UK.

Should the 'yes' vote come out on top - as seemed most likely according to bookmakers, who put the odds of a 'no' vote at around 1/3 - then the stage would be set for a large rally in the value of the pound against the US dollar, all the way to 1.60 by year-end.

However, a YouGov poll taken on 3-4 November revealed that 45% of voters were prepared to vote to leave the European Union, versus the 36% who said they would vote the opposite.

According to the broker, the UK had achieved much of what it had asked for on matters pertaining to economic governance.

Likewise, the introduction of a 'red card' system allowing national parliaments to block EU legislation if 55% of them were opposed appeared to secure a formal safeguard against "further political integration", HSBC said.

However, the 'emergency-brake' system for curbs on benefits for migrants "falls well short of the UK’s original aim of no in-work benefits at all for a four-year period. Further details, including the period over which the act would apply, and its eligibility to be extended, are yet to be decided," HSBC chief economist Simon Wells said in a research note sent to clients.

The likelihood of Britons opting to exit the European Union in the upcoming referendum were not seen as too high, but were nevertheless not "trivial" economists at Citi said in another research report sent to clients on Monday.

Nonetheless, in their opinion, the effects of a Brexit were likely to be "large and painful in economic and political terms, both for the UK and the overall EU."

As of 11:12GMT cable was flat at 1.4500.