Photographer: Leon Neal/AFP via Getty Images

`Brexit' Risk Is Rising Amid Focus on Migration, Berenberg Says

  • Bank increases likelihood of U.K. exit from EU to 35% from 30%
  • Referendum could become vote on immigration, not EU membership

The risk of Britain voting to leave the European Union is rising, according to Berenberg.

Increased attention on the EU migrant crisis means that the probability of a “Brexit” has increased to 35 percent from 30 percent, the bank said in a report published on Wednesday.

”The risk that the EU referendum becomes a vote on immigration rather than about membership of an economic and political union is a significant threat," London-based economist Kallum Pickering said in a note. "Prime Minister David Cameron is now under more pressure to secure a viable concession on his most contentious proposals on immigration."

Cameron has signaled his planned referendum on whether Britain should stay in the EU or leave could be held in June if he reaches a deal on new membership terms at a summit next month. The main sticking point remains his demand that new migrants wait four years before they can claim in-work welfare benefits.

Meanwhile, anti-EU sentiment is on the rise as leaders struggle to get to grips with the more than 1 million migrants who have entered the bloc over the past year.

Diplomatic Push

Cameron canceled visits to his Swedish and Danish counterparts planned for Friday in order to make a short-notice trip to Brussels to meet EU Commission President Jean-Claude Juncker, in a sign that the intensity of diplomacy is increasing ahead of the Feb. 18-19 summit.

Polling on voting intentions in the run-up to the referendum has been inconclusive.

In the event of a vote to leave, the U.K.’s current-account deficit would become a ”serious risk,” Pickering said. "This could be the catalyst for a balance-of-payments crisis or, at the very least, a sharp depreciation of sterling, which would lead to higher inflation."

The pound has fallen by almost 6 percent on a trade-weighted basis over the past two months. Bank of England Governor Mark Carney said there has been little impact on investment in the U.K. due to the referendum, though he warned of potential issues relating to the financing of the current account.

"The possibility of risk premia being attached to U.K. assets because of certain developments is there," Carney told lawmakers on Tuesday. The global environment is "much more volatile, and relying on the kindness of strangers is not optimal in that type of environment,” he said.

Before it's here, it's on the Bloomberg Terminal.