World Economy

Brits Vote to Leave EU

Brits Vote to Leave EU Brits Vote to Leave EU

Britain has voted to leave the European Union, with the Leave campaign securing around 51.8% of the vote. And Prime Minister David Cameron said he would resign, news outlets reported.

In calling a referendum on Britain’s membership in the European Union, Cameron made a gamble that sank his career—and set his country on a course to leave an international alliance it joined more than 40 years ago.

“Although I will try to steady this ship, I think we should have a new UK prime minister by October,” Cameron, speaking outside his Downing Street office on Friday morning, said.

The announcement of his intention to resign marks a dramatic downfall for a man who first became prime minister in 2010 and just last year won a resounding victory for a second term, the first time in 23 years his party won full control of the government.

  Currencies in Freefall

The referendum results indicating stronger-than-anticipated support for the country to leave the European Union roiled global currency markets and sent the British pound plunging to its lowest level since 1985.

The euro also dropped, while higher-yielding currencies from Australia and New Zealand to Mexico and South Africa slumped. Investors in search of safer assets pushed the Japanese yen past 100 per US dollar for the first time since November 2013.

The British pound fell as much as 11% to $1.322, the weakest since 1985. The yen rose 4.2% to 101.92 per dollar, having earlier strengthened to 99.02 per dollar. The euro was down 3% at $1.104. The Australian dollar dropped 2.8% to 74.02 cents. The New Zealand dollar fell 2.5% to 70.71 cents.

The Mexican peso slid 3.9% to 18.97 per dollar. The South African rand depreciated 5% to 15.16 versus the greenback. The Swiss franc was 1.5% lower at 97.28 centimes per dollar. Norway’s krone slid 6.2% to 8.680 per dollar. Poland’s zloty was down 5.9% at 4.073 against the US currency.

The FTSE 100 fell more than 8% at the open wiping more than £100 billion ($136.7 billion) off the market cap of the UK’s biggest bluechips. The blue-chip FTSE 100 index was down by around 7% in early session trading, its worst one-day percentage loss since October 2008, when global markets slumped in the wake of the collapse of Lehman Brothers.

The mid-cap FTSE 250 index, which is dominated by companies exposed to the domestic British economy, also fell 11.4%.

Among the hardest hit stocks were banks, house-builders and property companies.

  In Asia

Heavy losses were reported across Asia stock markets, while also noting that foreign currencies were strengthening against the pound.

Yields on US treasuries were falling, a sign of a flight to safety among investors.

Stocks in Japan suffered their worst day in five years, leading broad losses in markets across Asia.

The Nikkei Stock Average on Friday plunged 8.2%, led down by shares in exporting companies as the Japanese yen surged. The Japanese currency reached 99 yen to the U.S. dollar, the currency’s strongest level since November 2013.

Some Japanese companies seen as highly exposed to the UK economy fell particularly hard. Industrial conglomerate Hitachi was down 10%, while advertising agency Dentsu dropped 8.9% and auto maker Nissan Motor fell 8.5%.

In Hong Kong shares dropped 4.7%, as names with exposure to the UK such as major banks Standard Chartered and HSBC Holdings took heavy hits. Each dropped close to 9%, as investors fretted about the business and economic consequences of a vote for a British exit from the EU.

India’s equity investors are in shock. Even before the final numbers were out, India’s benchmark Sensex index opened over 700 points or 2.85% lower at 9:20 am local time. By 2:30 pm, the Sensex fell over 730 points, which is a recovery after massive losses early in the day.

  BoE Reacts

The Bank of England said on Friday it would take all necessary steps to secure monetary and financial stability after Britain voted to leave the European Union.

“The Bank of England is monitoring developments closely,” it said in a statement.

“It has undertaken extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks.”

  EU Worried of Its Future

The European Union’s 27 remaining members will meet to assess its future next week without Britain, the president of the European council, Donald Tusk, has said, as the bloc struggles to absorb the seismic implications of the UK’s decision to leave.

Tusk said he had spoken to EU leaders in the past few days and the union had been prepared for the result and was determined to keep its unity. “There is no hiding the fact that we wanted a different outcome of yesterday’s referendum,” he said in Brussels on Friday.

“There is no way of predicting all the political consequences of this event–especially for the UK. It is a historic moment, but not a moment for hysterical reactions.”

Tusk promised to convene informal discussions without the British prime minister, David Cameron, on the margins of a scheduled EU summit next week, as well as a wider reflection on the future of the union.

  Providing Liquidity

The European Central Bank is ready to provide euro and foreign currency liquidity if necessary, it said on Friday, after Britain voted to leave, sending global financial markets into a tailspin.

“Following the outcome of the UK referendum, the ECB is closely monitoring financial markets and is in close contact with other central banks,” it said in a statement.

“The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies,” it added. “The ECB will continue to fulfill its responsibilities to ensure price stability and financial stability in the eurozone.”