In 1624, John Donne wrote “No man is an Island, entire of itself; every man is a piece of the Continent”. Almost 400 years later, however, a narrow majority of the UK electorate did not appear to share his sentiments. In a very close vote with turnout of 72.2% , 51.9% of British voters elected to leave the European Union (EU), while 48.1% voted to remain . UK shares fell heavily following the result of the much-publicised referendum, dropping by almost 9% .
Having surged above US$1.50 amid expectations of a victory for the “Remain” campaign, sterling subsequently fell as low as US$1.32 against the US dollar as the “Brexit” vote pulled ahead. As the results unfolded, and the prospect of Brexit began to appear more probable, Asian equity markets fell sharply . Meanwhile, gold surged and the yen – widely viewed as a “safe-haven” currency – strengthened; gilt prices rose and yields plummeted.
Following the result, Governor of the Bank of England (BoE) Mark Carney stressed the resilience of the UK’s financial system and maintained that there would be “no initial change” in the way that Britons travel or trade, although he warned that some market and economic volatility should be expected. The Confederation of British Industry (CBI) called on the Government and BoE to shore up confidence and economic stability, but observed that “rushed decisions” would not be appropriate. The British Chambers of Commerce (BCC) also urged the Government and BoE to take “swift, decisive, and coordinated action” to stabilise markets if necessary.
Looking ahead, as the UK starts the convoluted process of detaching itself from Europe, sentiment is likely to be adversely affected by concerns over the future. The BCC warned that “confidence, investment, hiring and growth” are all likely to be undermined by a protracted period of uncertainty. Meanwhile, political instability has been exacerbated by the news that Prime Minister David Cameron will step down by October. Furthermore, following Scotland’s “remain” vote, the referendum’s result will reignite debate over the question of Scotland’s independence. Elsewhere, the result is expected to throw an unwelcome spotlight on existing divisions within the rest of the EU. And, of course, there will be questions over how soon the UK will invoke Article 50 , which sets out the – as yet unprecedented – procedure for the withdrawal of a member state from the EU.
As more detail and consequences emerge we will continue to update you. As ever, should you need to call us please do so.