EU Referendum: Business and finance reaction

The main UK indices are all down sharply. The FTSE 100 and 250 both opened with record falls, although they appear to have stabilised somewhat. However, UK banking stocks have taken a pounding, with Lloyds, Barclays and RBS all down between 20-30%. This came despite bank bosses’ efforts to reassure customers and investors that events were under control, and the Bank of England’s insistence that it had rigorously stress-tested UK banks. In a memo to staff Barclays CEO Jes Staley told staff "I do not pretend to have all the answers" but insisted that the result would not break the bank's commitment to customers and clients.

Overnight, Sterling fell more than 10% to its lowest level against the dollar since 1985. Against the Euro the pound fell 7%. Before the results, the Pound had risen due to market expectations of a vote in favour of Remain. The first signs of what was to come for equities arrived overnight with over 7% wiped off the Nikkei. Since then, markets around the world have reacted negatively to the news, especially in Europe where most major indices are down. The price of Brent crude and US crude both fell sharply, while safe haven commodities including gold, silver and platinum were all up.

The Bank of England has moved swiftly to try to calm markets by insisting it stands behind the major banks and will move to support sterling if necessary. In a speech, Governor Mark Carney said that the Bank stands prepared to use up to £250bn to help improve liquidity. Goldman Sachs predicts that the Bank's Monetary Policy Committee is likely to cut interest rates from their already record low when it next meets in August. Similarly, The European Central Bank (ECB) has pledged to provide liquidity to keep markets functioning.

Other central banks have also attempted to calm the volatility. The Swiss National Bank has said it has intervened in the foreign exchange markets to stabilise the situation and will remain active. Meanwhile, central banks in East Asia and India all moved to reassure markets that they had the tools to support liquidity. 

The FCA has moved to reassure firms that financial regulations are not affected by the EU referendum despite many rules emanating from Brussels. The regulator has committed to working closely with other government bodies as well as the Bank of England on the impact of the negotiations on financial services.

Ratings agencies have already given indications of the impact of the referendum for their view of government debt. Moody's and S&P have both have issued statements that the result of the referendum may lead to a downgrade of Britain's AAA credit rating status. The volatility in the markets and weakness in the Pound is likely to exacerbate Britain's current account deficit significantly, posing a serious headache for any incoming government.

International banks have already reacted to the news on a corporate level with a number trying to reassure employees. Both JPMorgan and Deutsche have sought to reassure staff that there will be no significant job losses or restructuring. 

Reaction from the finance community has been gloomy but resolute. The Association of British Insurers insisted the insurance and long-term savings industry is "strong and built to protect customers from market uncertainty and shocks." Financial lobbying organisation TheCityUK said its immediate focus is on stability, while calling for clear agreement on the way forward, especially in regard to regulation and the single market.

The Institute of Directors (IoD) admitted that it was not the result that the majority of their members wanted but that the government must do all it can to retain access to the single market. Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI) called for "strong and calm leadership from the Government".

Robert Isherwood

Hill & Knowlton Strategies Search