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Analysts at Nomura suggest that a scenario where the UK’s Labour party backs a second referendum is one of the more difficult tail risks to GBP price, but is one we get asked a lot about.

Key Quotes

“It is still unlikely and in our view the government will manage to scrape through a meaningful vote later this year. But on the weekend there could be second referendum headlines with the Labour party conference looking to vote on the topic.”

“If the Labour party merely backs the option of a referendum and if the Brexit deal fails to be approved in parliament, that is a weak endorsement. It would be keeping the second referendum open as an option, but makes it less likely to happen as the Labour party would still threaten an election too.”

“It would still be a very close vote in parliament though and our base case is that whatever is agreed with the EU will be approved in the Commons. But just in case Labour policy shifts the likelihood we walk through how to interpret this. The headlines may capture some market attention, perhaps be slightly GBP positive, but would still carry some risks along the way.”