Brexit causes market chaos
24 June 2016 London
Image: Shutterstock
The UK has narrowly voted to leave the EU, with 51.9 percent of voters opting to exit the union, causing the pound to plummet to 30-year low.
The immediate fallout of the so-called ‘Brexit’ has seen David Cameron resign as UK prime minister, effective from October, and the to pound suffer its sharpest drop in history, with £128 billion wiped from the FTSE 100, so far.
George Osborne, chancellor of the exchequer, is widely expected to follow suit with the Prime Minister later today.
In the first two hours of trading markets reacted so violently to the unexpected result that, at time of writing (9.00 am), the UK has lost its status as the fifth largest economy to France, due to the rapidly falling value of the pound.
The UK is also now at risk of losing its Standard and Poor's AAA credit rating and faces further demotion by Moody's, as a result of the market volatility.
In a statement on the decision, Moody’s explained: “The immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling.”
“Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects.”
Governor of the Bank of England Mark Carney immediately called for calm in the markets, stating: “The treasury and the Bank of England have engaged in extensive contingency planning and the chancellor and I have been in close contact, including through the night and this morning.”
UK banks have raised over £130 billion of capital, and now have more than £600 billion of high quality liquid assets.
“The bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward,” Carney added.
Carney acknowledged that a period of “uncertainty and adjustment” is inevitable.
Deutsche Börse and the London Stock Exchange, which are in the midst of merger talks also released a joint statement re-confirming that the talks were “not conditional on the outcome of the referendum”.
Joachim Faber, chair of the supervisory board of Deutsche Börse and chair of the Referendum Committee, said: “The decision of the UK to leave the EU makes it ever more important to maintain and foster ties between the UK and Europe.”
“We are convinced that the importance of the proposed combination of Deutsche Börse and London Stock Exchange Group has increased even further for our customers and will provide benefits for them as well as our shareholders and other stakeholders.”
The Brexit vote marks the start of long period of turmoil for the UK markets, with years of renegotiations between individual EU markets now necessary, with no precedent available to offer guidance or encourage market certainty.
The Scottish National Party leader Nicola Sturgeon and Northern Ireland first minister Martin McGuinness are both expected to call for further referendums on their region’s membership of the UK after Northern Ireland and Scotland voted decisively in favour of remaining in the EU.
Further referendums will cause a significant delay to any return to normality for the EU and UK markets.
The UK was first formed with England, Scotland, Wales and Northern Ireland in 1707 and has been a member of the EU since 1973.
The immediate fallout of the so-called ‘Brexit’ has seen David Cameron resign as UK prime minister, effective from October, and the to pound suffer its sharpest drop in history, with £128 billion wiped from the FTSE 100, so far.
George Osborne, chancellor of the exchequer, is widely expected to follow suit with the Prime Minister later today.
In the first two hours of trading markets reacted so violently to the unexpected result that, at time of writing (9.00 am), the UK has lost its status as the fifth largest economy to France, due to the rapidly falling value of the pound.
The UK is also now at risk of losing its Standard and Poor's AAA credit rating and faces further demotion by Moody's, as a result of the market volatility.
In a statement on the decision, Moody’s explained: “The immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling.”
“Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects.”
Governor of the Bank of England Mark Carney immediately called for calm in the markets, stating: “The treasury and the Bank of England have engaged in extensive contingency planning and the chancellor and I have been in close contact, including through the night and this morning.”
UK banks have raised over £130 billion of capital, and now have more than £600 billion of high quality liquid assets.
“The bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward,” Carney added.
Carney acknowledged that a period of “uncertainty and adjustment” is inevitable.
Deutsche Börse and the London Stock Exchange, which are in the midst of merger talks also released a joint statement re-confirming that the talks were “not conditional on the outcome of the referendum”.
Joachim Faber, chair of the supervisory board of Deutsche Börse and chair of the Referendum Committee, said: “The decision of the UK to leave the EU makes it ever more important to maintain and foster ties between the UK and Europe.”
“We are convinced that the importance of the proposed combination of Deutsche Börse and London Stock Exchange Group has increased even further for our customers and will provide benefits for them as well as our shareholders and other stakeholders.”
The Brexit vote marks the start of long period of turmoil for the UK markets, with years of renegotiations between individual EU markets now necessary, with no precedent available to offer guidance or encourage market certainty.
The Scottish National Party leader Nicola Sturgeon and Northern Ireland first minister Martin McGuinness are both expected to call for further referendums on their region’s membership of the UK after Northern Ireland and Scotland voted decisively in favour of remaining in the EU.
Further referendums will cause a significant delay to any return to normality for the EU and UK markets.
The UK was first formed with England, Scotland, Wales and Northern Ireland in 1707 and has been a member of the EU since 1973.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
