Those that were hoping the Brexit referendum would allow us to move on must be sorely disappointed. The world and the UK in particular starts the week facing more uncertainty than a week ago. The Prime Minister has announced his resignation, the leader of the opposition’s position is looking ever more precarious and the leaders of the Brexit campaign hardly appear to be celebrating. The fact remains that no-one knows how this process will progress, when it will happen and in what form. The weekend has done little to resolve these questions; if anything it has exacerbated them. Further easing measures from the Bank of England appear almost certain next month given the economic ructions that have been caused, if not before. I’ve already heard of investment deals being cancelled, people being laid off and business decisions being delayed because of last week’s events.
What does this mean for the wider global economy and markets? The implications are many. In Europe, we are entering what will be an intense power-play. It’s clear that the core of the EU political establishment want to lance the boil that is the UK as quickly as is feasible. Minimal fuss, minimal debate, just get on with it. We don’t know yet, but most likely that the UK will want to negotiate an amicable divorce, cherry-picking the best parts of the relationship. If so, the European project is further de-stabilised should the UK get a better deal, as others will seek the same. Furthermore, it’s no coincidence that peripheral stock markets fell more than the UK market on Friday in Europe. The whole European project is under threat and they are the ones that will suffer if so.
Sterling recovered through the latter stages of Friday but finds itself weaker this morning on the Asia open, cable down more than 3 big figures into the European open. The UK Chancellor has spoken this morning in an attempt to offer assurance to markets and beyond. It’s no great surprise to see him move from talking down the economy (and suggesting emergency budget) to suggesting things are not going to be that bad. But that’s not going to be sufficient and further instability and volatility is assured for UK assets.