LONDON // Economists warned on Friday that the UK could enter a period of recession for as long as three to five years, after voting to leave the EU. A timeline of reactions is below.
Early heavy falls in UK stocks recovered slightly by lunchtime, down just 4 per cent, versus the 8 to 9 per cent falls seen early in the day.
However, some sectors were hit very hard, including banks, housebuilders and transport companies.
Berkeley Group, which builds luxury apartments that are popular with foreign investors, was down a fifth, while Barratt Developments was down more.
IAG, the owner of British Airways, saw its shares fall by about the same, while budget airlines, which had argued passionately for remain, were also down – easyJet off 17 per cent and Irish airline, Ryanair, down 13 per cent.
Experts warned that foreign investment in London would be hit, as credit rating agencies warned that they would cut Britain’s AAA status, and that tens of thousands of jobs in the financial services sector were at risk.
Simon Hunt, the UK head of banking and capital markets at PWC, said: “Overseas banks currently using the UK as a base for accessing the EU market and employing an estimated 115,000 staff are likely to be looking closely at their operations in the UK in the context of the leave vote.”
Scott McCubbin, the UK IPO leader at EY, said that new floats on the stock market would largely cease in the next 12 months, while merger activity was also likely to grind to a halt.
As an immediate example, Steinhoff International, a South African investor that has bought a 23 per cent stake in the UK retailer Poundland in the hope of launching a takeover of the group, said it was considering its position.
The estate agents Douglas & Gordon said that investors might take advantage of housing prices in London’s emerging areas that were now 20 per cent lower than two years ago, in US$ terms, because of the sharp fall in the pound.
Timeline of reactions as result becme clear:
All times UAE
2.30pm
Gerard Grech, the chief executive of Tech City UK, the government-backed organisation which promotes the UK’s digital economy and tech community, said: “The UK remains a world-class country with world class resources and assets; people, finance, legal framework and a supportive government. Nobody knows how this dramatic decision will eventually play out. But we can be sure the UK will remain at the forefront of innovation and entrepreneurship, and the tech community – with its spirit of problem-solving – will be at the heart of that.”
The tech community had campaigned hard for a Remain vote as many leading voices amongst start-ups and investors said that London’s position as the tech centre of Europe would be damaged by a vote for Brexit.
2.20pm
Some of the City’s best known entrepreneurs are celebrating today. Howard Shore, the executive chairman of stockbrokers Shore Capital, said: “We now have a fantastic opportunity to deregulate the economy and better compete on a global stage in the 21st century.”
Shore thinks that the EU should consider how a two-speed Europe could work: “The closeness of the result should encourage EU leaders to think pragmatically, arriving at a solution where Britain is out of the political union, but retains the ties that are of mutual benefit; and creates a two-speed Europe for those wanting to stay out of the euro zone and its inevitable move towards closer political union. As has been said many times, the Germans have no appetite to exclude us from the single market – only yesterday its industry chief, Markus Kerber, noted the foolishness of imposing trade barriers.”
1.40pm
The merger between the London Stock Exchange and Deutsche Borse will not be derailed by the referendum outcome, according to the two indexes.
The companies are currently talking to market regulators, including the Bank of England, to get the approvals they need to combine. The boards of the two companies said that they continue to believe that a merger represents a compelling opportunity for both businesses, which will accelerate their successful and complementary growth strategies.
Shareholders in the London Stock Exchange are being asked vote on the scheme of arrangement before a meeting on 4 July.
“Deutsche Börse [“Deutsche Börse”] and London Stock Exchange Group plc [“LSEG”] note the result of the UK Referendum which recorded a majority of votes in favour of leaving the European Union,” the indexes said in ajoint statement.
Joachim Faber, the chairman of the supervisory board of Deutsche Börse and the chairman of the referendum committee, said: “The decision of the UK to leave the EU makes it ever more important to maintain and foster ties between the UK and Europe. We are convinced that the importance of the proposed combination of Deutsche Börse and LSEG has increased even further for our customers and will provide benefits for them as well as our shareholders and other stakeholders.”
Donald Brydon, the chairman of the Board of LSEG and the chairman designate of the combined group, said: “I look forward to working with my new colleagues to create an industry-defining combination which will be a leading global market infrastructure business anchored in Europe.”
1.35pm
Aviva, one of the biggest insurers in the UK, said that the vote to leave the EU would have no significant operational impact on the company.
In a stock exchange statement, the company said: “Aviva’s operations in the UK and its other subsidiaries in the EU are well capitalised and continue to trade as normal. Aviva continues to be supervised by the PRA/FCA as lead regulator and Aviva’s European subsidiaries are incorporated and regulated locally and principally trade in their local market.
“At Aviva’s 2015 preliminary results, published in March 2016, Aviva reported a Solvency II ratio of 180% and a surplus of £9.7 billion [Dh52.78bn]. Aviva has one of the strongest and most resilient balance sheets in the UK insurance sector with low sensitivity to market stress and over the last four years Aviva has tripled its economic capital surplus.”
1.30pm
IAG, the owner of British Airlines, says that it expects to see a smaller increase in profits this year, because of the market volatility surrounding the referendum.
The airline group said: “The vote to leave the European Union will not have a long-term material impact on its business. In the short term, however, in the run up to the UK referendum during June, IAG experienced a weaker than expected trading environment. Following the outcome of the referendum, and given current market volatility, while IAG continues to expect a significant increase in operating profit this year, it no longer expects to generate an absolute operating profit increase similar to 2015.”
11.15am
The budget airline easyJet, one of the most vocal Remain campaigners, has released a statement: “easyjet notes the result of the referendum in favour of the UK leaving the EU and is confident that it will not have a material impact on its strategy or its ability to deliver long term sustainable earnings growth and returns to shareholders.
“easyJet has been preparing for this eventuality in the lead up to the referendum vote and has been working on a number of options that will allow it to continue flying in all of its markets.
“easyJet’s initial focus will be to accelerate discussions with UK and EU governments and regulators to ensure that the UK remains part of the single EU aviation market. This would enable EU airlines to fly freely within the UK and between the UK and EU, allow UK airlines to fly freely across Europe and would ensure that consumers continue to benefit from low fares and would mean easyJet and other airlines can continue to operate as they do now. easyJet will also continue to develop its alternative options that will fully maintain its existing network and operations.
“easyJet is confident that its unique network, digital leadership, cost advantage and financial strength will enable it to continue to execute on its strategy and to deliver long term sustainable earnings growth and returns to shareholders.”
Carolyn McCall, easyJet chief executive: “We remain confident in the strength of easyJet’s business model and our ability to continue to deliver our successful strategy and our leading returns. We have today written to the UK Government and the European Commission to ask them to prioritise the UK remaining part of the single EU aviation market, given its importance to trade and consumers.”
11.07am
James Roberts, the chief economist at Knight Frank, property surveyor: “The chances of a technical recession, as business investment is curtailed, is high and exporters and financial services firms will be in the forefront of the downturn.
“In the light of the above risks we expect the Bank of England, seasoned by the experience of Global Financial Crisis, to respond quickly. An interest rate cut of 25 basis points is a strong possibility at the Monetary Policy Committee’s July meeting, or perhaps earlier if required. We may also see a return of quantitative easing, if there are signs that investment is deteriorating. This should in our opinion help restore confidence as the summer progresses.”
Grainne Gilmore, the head of UK residential research at Knight Frank on the housing market: “In the short-term, consumer confidence is likely to be knocked by the continued uncertainty, especially with regards to trade. This may weigh on activity in the market, especially those making discretionary purchases, which could result in a slip in transaction volumes, and prices. However, uncertainty could also result in a further dampening of homes coming onto the market, and this lack of supply will provide a floor under prices.”
11am
Tim Martin, the founder of the Wetherspoon pubs and restaurants chain and one of a few prominent Leave campaigners from the business community: “The referendum result will enhance freedom and security.
“Some people will now be anxious, but concentrating on these immensely important factors will provide reassurance. Anxiety about the economic effects of independence during the campaign was misplaced.
“The UK will thrive as an independent country, making its own laws, and we will work with our good friends and neighbours in Europe and elsewhere to ensure a positive outcome for all parties. The most important factor now is to work together for our mutual benefit.
“On a practical level, from my experience of running a business, the key factor now is to avoid the appearance and the reality of rushing to ‘do a deal’ with the EU.
“There is plenty of time and the UK is in an immensely strong position. A period of calm, reflection and discussion will be beneficial.”
10.54am
Douglas Fint, the chairman of HSBC, whose shares fell more than 3 per cent in Hong Kong overnight: “We are today entering a new era for Britain and British business. The work to establish fresh terms of trade with our European and global partners will be complex and time consuming. We will be working tirelessly in the coming weeks and months to help our customers adjust to and prepare for the new environment.
“As one of the largest, most stable, liquid and prudent financial institutions in the world, HSBC is well placed to support our customers and the markets as they deal with the challenges that will arise. Our commitment to British businesses, customers and staff in the UK remains undiminished.”
HSBC considered relocating its headquarters to Asia last year but eventually ruled it out so its commitment to the UK is significant.
10.25am
From Chris Ireland, UK cheif executive of JLL, property surveyors: “Such a major change will inevitably create uncertainty in the economy and real estate markets. In the event of a well-managed exit these impacts will be largely confined to the UK.
“In the short term we may see a weakening in occupier demand. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues. Investor sentiment may also remain subdued in the short to medium term. For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised.”
Adam Challis, the head of Residential Research, on residential values in London: “The London housing market will feel the effects of the vote Leave decision more deeply. The interconnected trading relationship between London and the rest of Europe means the implications are more complex. This will exacerbate the uncertainty for London’s homeowners. Paradoxically, investors may well identify opportunities in this market over the short-term, particularly international purchasers that can benefit from the currency arbitrage that has opened up by a weaker pound sterling.”
10.13am
Carolyn Fairbairn, the Confederation of British Industry director general:“Many businesses will be concerned and need time to assess the implications. But they are used to dealing with challenge and change and we should be confident they will adapt.
“The urgent priority now is to reassure the markets. We need strong and calm leadership from the government, working with the Bank of England, to shore up confidence and stability in the economy.
“The choices we make over the coming months will affect generations to come. This is not a time for rushed decisions.”
10.07am
Dr Adam Marshall, the acting director general of the British Chambers of Commerce: “In the wake of the electorate’s historic decision to leave the European Union, the immediate priorities for UK business are market stability and political clarity.
“Firms across the UK want an immediate and unambiguous statement from the prime minister on next steps, along with a clear timeline for the UK’s exit from the European Union.
“Business will also want to see a detailed plan to support the economy during the coming transition period – as confidence, investment, hiring and growth would all be deeply affected by a prolonged period of uncertainty. If ever there were a time to ditch the straight-jacket of fiscal rules for investment in a better business infrastructure, this is it.”
10.05am
Mike Thompson, chief executive officer of the Association of the British Pharmaceutical Industry, said the UK’s vote to leave the European Union “creates immediate challenges” for the industry.
“The voice of the British people has been heard. This creates immediate challenges for future investment, research and jobs in our industry in the UK. With that being the case, we are committed to working closely with the government to agree what steps need to be taken to send a strong signal that the UK is open for business,” said Thompson in a statement.
The pharmaceuticals industry is the UK’s biggest investor in research and development and its leading manufacturer and exporter.
9.10am
Piers Hillier, the chief investment officer at Royal London Asset Management: “On the back of this morning’s result we expect the UK will fall into a recession. Unfortunately I see unstable market conditions lasting for between three and five years whilst new trade arrangements are drawn up.
“It is our view that the UK Government will be left with no choice but to stimulate the economy through fiscal and monetary means, flooding the system with liquidity if necessary.”
8.45am
Howard Archer, chief UK + European Economist, IHS Global Insight is cutting its GDP growth forecasts to1.5% (from 2%) for 2016, 0.2% (from 2.4%) for 2017 and 1.3% (from 2.3%) for 2018.
“Major economic and political uncertainty will be a fact of life for some considerable time, likely weighing down markedly on business and household confidence and behaviour, so dampening corporate investment, employment and consumer spending,” Archer says.
He adds that the housing market could suffer a marked downturn. Financial sector activity in the City of London may well be hit quickly. Foreign investment into the United Kingdom is expected to suffer (both direct and portfolio).
He also predicts that the Bank of England could cut interest rates from 0.5% to 0.25% before long and could restart quantative easing.
The Monetary Policy Committee will be prepared to look through any near-term spike in inflation from a weakened pound. The Bank of England will likely take the view that the weakened growth outlook means it will be harder to hit the 2.0% inflation target in 2 years’ time. Of course, the Bank of England’s position may well be made even harder if there is a sharp flight of capital from the UK
8.30am
Michael Hewson, chief market analyst at CMC Markets, says: “The FTSE100 looks set to open down 468 points from its overnight close at 6,338 at 5,870 as markets around the world weigh up the consequences of a vote that looks set to ripple across the EU and the world.
Banking stocks are likely to be a particular concern given the weakness of the banking sector in Europe and the linkages between the UK and Europe.
Gold has surged back to $1,300 an ounce, as investors weigh up the prospects of what might happen with respect to UK Prime Minister David Cameron’s job prospects.”
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