Last weeks vote heralds a dramatic & profound change to the UK’s position in the world. However it is important to take stock of events.
The chart below shows the trajectory of the FTSE 100 Index since 2007 – and puts recent events into perspective when compared with events during the Great Financial Crash of 2008.
The result was clearly a surprise with Sterling suffering a 7% fall in value against US Dollar to trade at its lowest level for 30 years. £200 billion was wiped off the value of the UK stock market in just 10 minutes of opening, as well as major falls in other global equity markets. We have now seen the market bounce back from its earlier intra-day lows, however volatility in the Sterling and equity market was to be expected, especially as these markets had been positioning itself for a Remain victory in the days leading up to the result.
More bounces in asset prices and currencies are to be expected over coming days, as the re-rating process of the markets takes its course. However, we have heard reassurances from the Governor of the Bank of England that this will not be a re-run of the Great Financial Crisis of 2008, as UK banks are much more highly capitalised and rigorously stress tested than then. Nor is there any expectation of a global trade collapse as then. The Bank of England has also announced an additional £250 billion of funding and to do what it takes to support the financial system, as the UK economy starts to transition its relationship with the EU.