Britain has spoken. After four months of often bitter campaigning, 51.9 percent of voters, or 17.4 million people, helped pull the U.K. out of the European Union. That was a surprise not just to the Number Cruncher Politics gauge, but also to the gamblers, currency traders and most economics professors. Prime Minister David Cameron said he would resign by October, enabling his successor to begin divorce talks with the rest of the EU.
Polls are never perfect, and recent history has cast even more doubt on their reliability. The chart below aggregates all public surveys and attempts to address their shortcomings, with greater emphasis given to pollsters who were most accurate in the past. Where they all agree: It's too close to call, with the still-undecided voters likely to determine whether Britain will leave or remain.
Pretty much everyone agrees Brexit will hurt the British pound, with the debate more about how much the currency will depreciate. So investors are turning to the options market for protection. This chart uses so-called “risk reversal”* data compiled by Bloomberg to track investor sentiment on the pound.
*The Risk Reversal is a measure of the skew in demand for out-of-the-money options at high strikes compared to low strikes and can be interpreted as the market view of the most likely direction of the spot movement over the next maturity date. It is defined as the implied volatility for Call Options minus the implied volatility for Put Options on the base currency with the same delta.
As the risk of Brexit rises, investors are demanding to be paid more to lend to British companies. This can be seen in the difference—or spread—between U.K. and European investment-grade corporate bonds, which has soared this year.
Today's Brexit Likelihood Score: The score is based on the Number Cruncher Politics Brexit probability index, which is calculated by Matt Singh. The index combines the polling average with analysis of the likely accuracy of polls and data from the past referendums to project a probability distribution of outcomes. It takes into account the change in and volatility of public opinion in the run-up to past referendums with a particular focus on referendums relating to the EU. The index represents the modeled probability of a vote to leave. For more details, please visit www.ncpolitics.uk.
Brexit Poll Tracker: The tracker shows the Number Cruncher Politics polling average. The score is based on the Number Cruncher Politics Brexit probability index, which is calculated by Matt Singh. The Number Cruncher Politics polling average is an aggregation of published opinion polls for the U.K.'s European Union membership referendum. Each poll is adjusted for the house effect of the polling company, with equal weight given to telephone and online polls. Pollsters are also weighted by their historical performance and other criteria, and more recent data is given greater weight. For more details, please visit www.ncpolitics.uk