Before this week ends, British Prime Minister David Cameron will have a bit more clarity from a European Union summit regarding a revised set of terms that he hopes will persuade the U.K. electorate to stay in the European Union. A referendum on that question is being held later this year, and having this plebiscite was part of his reelection platform. He supports staying in the E.U. and would prefer to hold the vote in June.

This is arguably the most important global political event of 2016 – even taking the U.S. presidential election into account. That’s because this vote will pass judgment on a political experiment, started in 1957 with a few European countries, that grew into what has become an economic powerhouse that generates almost a quarter of the world’s GDP. 

The economic benefits of the EU are significant and undisputed to both the U.K. and the other 27 member nations. A study released by the London School of Economics last year estimated that if it left the EU, the U.K. could lose between 1.1 to 3.1 percent of GDP per year – a significant number these days as so many economies try to scrape together positive annual growth.

But what may make or break this vote is not the economics, but the question of social cohesion. A key element for many Britons is the concern about freedom of migration between EU countries. And as we have seen many times, the emotional impact of immigration tends to trump more seemingly mundane economic issues.

Even the timing of the proposed vote has a certain geopolitical tilt. June is about the earliest possible time operationally to hold the referendum, which Prime Minister Cameron wants to have out of the way before the summer, when immigration is likely to increase and be more prevalent in the news. 

Current polling has the vote to remain in the EU at 51 percent – barely edging out those wanting to leave at 49 percent. The polls were as high as 55 to 45 in favor of remaining as recently as a month ago.

Our View: This question will be a big deal for global financial markets during the entire first half of the year. It is likely to be a major determinant in the level of several financial indicators, such as U.K. equities or sterling strength or weakness. We’re likely to see those indicators move in tandem with the polls, as U.K. assets strengthen in correlation with British public sentiment supporting remaining in the EU. 

The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader’s specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.