The U.K. Votes to Leave the EU
The U.K. has voted 52/48 to leave the EU. The result is unexpected as only yesterday financial markets put a 90% probability on a Remain vote.
As a consequence of the vote, sterling has fallen overnight to a 30 year low against the dollar and equity markets are expecting falls of up to around 10% in early trading.
More widely, there are concerns regarding the integrity of the EU with Euro-scepticism on the rise across Europe, and the future of Scotland and N Ireland in the UK.
Our View
Whilst equities will inevitably suffer high levels of volatility and sharp falls in the short term, markets tend to over-react. Our view is that investors should hold their nerve and sit out the volatility. The worst approach is to panic and sell at depressed prices.
Markets now seek strong and calm leadership, so the dust can settle and allow time for sensible decisions. Whilst David Cameron has announced he will step down as Prime Minister, he is committed to ensuring political stability.
The Bank of England has planned for the risks of Brexit and is tasked with maintaining the UK’s monetary and financial stability, working together with other central banks as necessary. As such, this includes maintaining confidence in sterling, the UK’s credit rating, supporting continued economic growth and keeping borrowing costs low. This could potentially result in new monetary stimulus, such as a further round of QE.
We continue to monitor the situation closely and will provide further updates as appropriate.