Brexit - expect the unexpected

Brexit is now a reality - supported by 52% to 48%.  For markets this is a very unexpected result.  What does this mean?

Short term:

- 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?).

Medium/Long term:

- 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!

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