Brexit – Project Fear is Working

With less than 10 weeks to go the EU referendum debate in the UK continues to hot up. The UK government is, for the first time in a generation, putting the EU question directly to the electorate. This should be viewed as a positive move and demonstrates democracy in action. However, far from there being a reasoned debate on the pros and cons of continued EU membership, to-date it has become an exercise in scaremongering. Both sides are using scare tactics to fuel emotions which they feel will give them an advantage in the debate. Fear is the most prominent sentiment used by both parties. Playing on emotions rather than producing the “facts” appears to be the main tactic used so far to win over the voting public.

Rather than putting forward arguments in favour of staying in the EU for the most part the “In” camp has been running a negative campaign focussed on the costs associated with Brexit. Indeed, just this week Chancellor Osborne, citing a 200-page HM Treasury report, warned that leaving the EU would cost households around £4,300 per year because of a less interconnected UK economy outside the union. Despite BoE governor Carney describing the Treasury report as “sound”, the government’s figures have come in for a great deal of criticism, and not just from those campaigning for Brexit[1].

The impact of Brexit, especially on the nature of trade relations with the rest of the EU, is inherently unpredictable because of the lack of precedent. Even though the EU treaty contains a clause for leaving (Article 50) it has never been used[2]. This means putting a precise figure on the cost of Brexit is extremely difficult.

However, the absence of a counterfactual is also a problem for the “Out” camp, because it is impossible for “Outers” to refute by example the Treasury figures, or to seriously challenge the underlying assumptions in the report[3]. Moreover, failure to provide a credible alternative narrative which challenges such reports and supports their own view is leaving (no pun intended) the “Out” camp with a credibility problem in the eyes of the electorate. It raises questions about belief and trust in their message, sentiments, which could have a significant bearing on the outcome of the referendum.

Surprisingly, despite all the noise generated by the debate, aggregated opinion polls still show neither side gaining a decisive lead (see chart below). Moreover, the gap in the vote share between “In” and “Out” is significantly lower than the percentage of undecided voters, which some polls suggest has actually risen of late to almost 17 percentage points[4].

Exhibit 1: Referendum Vote Intention Poll of Polls

Source: www.WhatUKThinks.org/EU run by NatCen Social Research

Based solely on the opinion poll results it would appear that the outcome of the June 23rd referendum is, to borrow a much-overused phrase, “too close to call”. However, the sentiment indicators we track at Amareos suggest the vote may not be quite as close as the polls indicate.

Readings of Fear – both in relation to GBP and the broader UK economy – have risen sharply over recent weeks (see chart below[5]). This suggests that the “In” campaign (Project Fear as some have renamed it – correctly it would appear) has been very successful in triggering a strong negative emotional response in people.

Exhibit 2: The Brexit Effect

Source: www.amareos.com

Such extremely high Fear readings, reflective of worries about the negative economic consequences of Brexit, serves to reaffirm our earlier expressed belief that “when push comes to shove the [UK] electorate will vote in favour of continued EU membership” because of the “power of the status quo” [6]. After all, UK voters are hardly likely to trigger an outcome they are already displaying such a high degree of concern about if it can be avoided altogether simply by ticking a different box on the ballot paper[7].

Of course, this is the state of play at present. The situation is fluid and 10 weeks of campaigning remain. But the Amareos sentiment data suggest that if the “Out” camp wants to win on June 23rd they need to begin to address the fears stoked by the “In” camp, and soon[8].

*Sentiment Analytics are based on MarketPsych indices.

The chart in the piece includes the TRMI Fear index for the UK economy and TRMI Fear index for GBP.

[1] See: http://blogs.spectator.co.uk/2016/04/the-deceptions-behind-george-osbornes-brexit-report.
[2] The closest example is when Greenland split from Denmark and voted to leave the EEC in the 1985 referendum – hardly a useful comparison.
[3] The HM Treasury report makes clear the assumption as to the nature of post-exit trading relations is a critical component of their analysis.
[4] See: http://uk.reuters.com/article/uk-britain-europe-poll-comres-idUKKCN0XE17D
[5] The Fear indicator is calibrated such that it lies within the range 0-100. Hence, the latest readings imply Fear in the UK is close to its highest possible level.
[6] See: https://amareos.com/blog/2016/02/04/brexit-camerons-bet/
[7] Think turkeys voting for Christmas!
[8] Highlighting the downside for the UK economy of maintaining the status quo is another plausible strategy for the “Out” camp.