Support 100 years of independent journalism.

  1. Business
  2. Economics
24 June 2016

How is Brexit affecting the markets and the UK economy? What we know so far

Most economists expect that Brexit will hurt UK growth over the next few years.

By Xan Rice

Global stock markets fell sharply and sterling plunged 10 per cent to a 30 year low after Britain voted to leave the European Union.

The referendum result shocked investors and led to panic selling around the world. The FTSE100 index fell by as much as 9 per cent when the market opened on Friday morning, though trimmed it losses to 4 per cent by 2pm after the Bank of England pledged to help stabilise the markets. In Germany, the Dax index fell 7 per cent, while in the France the CAC was down 8 per cent. Losses were heavy outside Europe, as risk aversion set it. In Japan, the Nikkei 225 fell 8 per cent, with the ASX index in Australian down 4 per cent. The S&P 500 in the US, regarded as the global equities barometer, is set to drop 4 per cent when it opens later today, according to the futures market.

The pound was pummeled in early trading, sinking below the $1.33 mark, the lowest level since the mid 1980s. A brief recovery was stalled by calls for a second independence referendum in Scotland, leaving the pound at $1.37 in afternoon trading. Sterling also declined sharply against the Yen and the Euro.

Most economists expect that Brexit will hurt UK growth over the next few years. The unemployment rate is also expected to rise, as companies delay investment and hiring decisions.

“The UK’s decision to leave the European Union will lead to a prolonged period of uncertainty that will weigh on the country’s economic and financial performance and will be credit negative for the UK sovereign and other rated entities,” the credit ratings agency Moody’s said on Friday morning.

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. A weekly newsletter helping you fit together the pieces of the global economic slowdown. Quick and essential guide to domestic and global politics from the New Statesman's politics team. The New Statesman’s global affairs newsletter, every Monday and Friday. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s weekly environment email on the politics, business and culture of the climate and nature crises - in your inbox every Thursday. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A newsletter showcasing the finest writing from the ideas section and the NS archive, covering political ideas, philosophy, criticism and intellectual history - sent every Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.

Bank of England governor Mark Carney also warned of “some market and economic volatility” as the process to leave the EU unfolds, but said the bank was prepared to provide £250bn of additional funds available to stabilise the markets.

Content from our partners
Railways must adapt to how we live now
“I learn something new on every trip"
How data can help revive our high streets in the age of online shopping

Property companies were the biggest losers on the FTSE, suggesting that investors expect an end to the UK property boom. Shares in Taylor Wimpey, Derwent and Persimmon fell by more than 25 per cent. Financial services stocks dived too, with Virgin Money down 26 per cent. Easyjet and IAG, the parent company of British Airways, also recorded sharp falls. 

The price of haven assets surged. Gold, which performs strongly investment in times of turmoil rose by 4 per cent to $1,350 an ounce, a two-year high. Investors also piled into Treasury bonds.