Why UK’s EU referendum may be sooner than you think

The possibility of a “Brexit” – Britain exiting the European Union after more than four decades – may become reality sooner than many in the markets expect.

Since winning an unexpected majority in Thursday’s general election, U.K. Prime Minister David Cameron has already re-committed to an in-out referendum by the end of 2017. However, he also acknowledged earlier in the year that it could come sooner.

Following his electoral success, Cameron said he is already trying to re-negotiate the U.K.’s position within the EU. If he can win concessions, it may help keep his own party and the rest of the electorate on side.

“This election result gives David Cameron considerable political capital, and for the sake of financial stability it is to be hoped that he uses this to take a tough but ultimately constructive view on the U.K.’s role in the EU,” Michael O’Sullivan, chief investment officer for the U.K. at Credit Suisse, wrote in a research note.

Currently, polls indicate that the electorate favors remaining in the EU, with a poll by Survation for the Mail on Sunday over the weekend suggesting that 45 percent would vote to stay, and 38 percent would vote to leave.

Yet Thursday’s election result – which came as a shock to most pollsters — shows how unreliable polls can be.

Here, we look at why the referendum may come sooner rather than later.

Middle Eastern refugees

There is already controversy brewing in the U.K.’s right-wing press about whether or not the country will be “forced” to take in some of the refugees and asylum seekers who have tried to cross the Mediterranean in recent weeks.

The European Agenda on Migration, which is expected to be announced on Wednesday, is set to include a proposal that the people – many of them from war-torn states like Libya and Syria – are distributed amongst EU states according to their population and economic health.

The desperation of these refugees has been highlighted by a number of tragic accidents in the Mediterranean, with close to 2,000 people either dead or missing in its waters over the year to date, according to the International Organization for Migration.

Immigration was one of the key issues in the recent U.K. election campaign, and the newly re-elected Prime Minister, who is reliant on his backbench MPs, will not want to look soft on either the EU or asylum seekers.

CNBC

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