Brexit is now a reality - supported by 52% to 48%. For markets this is a very unexpected result. What does this mean?
- Currency and equity markets will be volatile - this is because the near term economic impacts are not entirely clear. Brexit is widely thought to be negative for UK and Eurozone GDP - the question is how big will the impact be?
- Currency: Sterling fell 10% against the USD and 7% against the NZD. We believe it has further to fall. Against the USD it traded at levels not seen since 1985.
- from a "real world" perspective not much changes immediately. The referendum does not automatically withdraw the UK from the EU - that requires a vote of parliament. The main immediate change is that confidence levels for UK businesses and consumers are likely to fall (will that impact on employment and earnings?).
- Assuming the UK parliament votes to leave the EU then there is a 2 year period to negotiate withdrawal. The new UK/EU trade relationship will be a priority.
- Key longer term issues include: (1) will the City of London remains as Europe's financial capital? (2) will other EU countries now vote on leave / remain question? (3) what will the new UK / EU trade deal look like (4) will Scotland look again at its own independence?
Interesting times ahead!