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Global Markets Uncertain As UK Decides To Leave European Union

UK and The EUThe United Kingdom (UK) has voted to exit from the European Union, throwing global markets in shock and deep turmoil. UK Prime Minister David Cameron, who was a staunch supporter of remaining in the EU has stepped down saying that the country now needs new leadership.

The FTSE 100 plunged over 8 percent on opening erasing £120 billion of market value, its biggest drop since the 2008 financial crisis.

The pound has witnessed its largest one-day fall in history, reaching its lowest against the dollar since 1985, after rising to a 7 year high yesterday. Oil prices are down by 5.2 percent.

The result of the referendum which was held on June 23 has shown that 52 percent of voters voted in favour of Britain leaving the EU. The referendum witnessed a strong turnout of over 70 percent.

Financial Times

The Brexit reflected market fears as news came in with the FTSE index futures dropping by 8 percent, euro zone's Euro Stoxx 50 futures falling by more than 11 percent and Germany's Dax futures dropping by about 9 percent. Financial markets across the world are also experiencing volatility with Japan’s Nikkei dropping by over 7.5 percent. Standard &Poor ‘s chief rating office has said that UK’s AAA credit rating was no longer viable.

The Brexit vote will trigger the two year process of disentangling of UK’s economy from EU which experts say is largely uncharted territory. The country will now lose its right of access to EU’s trade barrier-free single market and will need to renegotiate trade deals with all countries. To retain its access to the market it would need to accept EU regulations without any influence on them and will also be required to pay a significant fee similar to what Norway and Switzerland currently do.

It also raises questions on London remaining as one of world’s main financial centres. Given the uncertainty, investors are moving into safe-haven assets such as gold and yen which have been surging. The Bank of England has issued a statement assuring investors that it was watching the situation closely and will take steps as required to ensure stability.

There continues to be a sharp divide within the UK over its EU membership since regions like Scotland and Northern Ireland have voted strongly in favour of remaining within the EU. Scotland’s First Minister Nicola Sturgeon has said that Scotland sees a future in being a part of the European Union.

The vote might also result in other countries within the Europe Union exploring the possibility of also exiting the EU as there are already political factions in France and Netherlands that have called for similar referendums in their countries.


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