24 Jun 2016

Brexit: memories of the great financial crash

Not since the great financial crash had the atmosphere on a trading floor felt so febrile. We were there at 7.30am though it was clear from the bleary eyes that many traders had been up all night. For this was not the outcome that they or the markets had been expecting.


In fact the market had priced in the exact opposite. But throughout the night as the results started to trickle in what many thought would never happen, happened. Sterling duly tanked and with it the FTSE tumbled, losing more than 8 per cent at one point. We were in unchartered territory here, that much was clear.

Traders on the sterling desks screaming into their mouthpieces, juggling two phones at once. Then the news came that David Cameron had resigned and everyone looked around in disbelief. It felt like a Lehman moment. A referendum result spiralling out of control. The problem is, as history has taught us, markets hate uncertainty and so much of what lies ahead is uncertain.

There is no precedent for a country – especially one the size of the UK – exiting the EU. There’s no rule book to follow, no plan B, as George Osborne has warned.

Predictably the banks and housebuilders were hardest hit with Taylor Wimpey at one point down 42 per cent. The crème de la crème of Britain’s businesses from Virgin to Marks & Spencer to Vodafone had pleaded for the status quo – made their case for the economic dangers of Brexit. But in the end the electorate chose to walk away.

No wonder the boss of the CBI, Carolyn Fairbairn was forlorn when we met her a while later. She told me she’d been up most of the night and was “very sad, heartbroken” about what had happened though she insisted that businesses would bounce back “because they always do”.

But until some of the big questions start to get answered – crucially what type of trade agreements will now be agreed and how much access will be given to the single market – the reality is many of them will retrench. Sit on their hands, delay decisions and postpone investments. It’s what businesses always do. Go into risk averse mode.

John Mills, the Labour backer and one of the lead spokespeople for Business for Britain, was bleary eyed too. And he certainly wasn’t in champagne-popping mode. He admitted it felt somewhat uneasy as he watched events unfold but reiterated he still believed Britain would be better off out than in.

Mills downplayed the prospect of a recession, saying that people – and markets – always over-reacted on these occasions. The doom and gloom merchants were out in 1992 when Britain was forced out of the Exchange Rate Mechanism – but rather than a hike in inflation and massive job losses, Mills said Britain entered a period of strong economic growth over the next decade. “I’m not sure the economy will turn down,” he said.

Much of that has to do with how the consumer reacts. With house prices potentially set to fall and the value of pensions and savings declining, the danger is that over time, people will start to rein in their spending. And that, in turn, could precipitate the very recession they are trying to avoid.

By the close of markets, the FTSE had regained some of its value but if the US stock market is anything to go by – the Dow is down 471 points, or 2.6 per cent – it’s clear investors are anything but calm. A recession may not be imminent but we’re certainly in for a bumpy ride.

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5 reader comments

  1. Anthony Makara says:

    It was wrong for George Osborne to claim there is no ‘Plan B’ for Brexit. Now the UK will be able to develop its Internal Market without the restrictions imposed by Bruxelles. It will also now be able to strike more favourable trade deals around the world without being held back by the Economic Protocol of Bruxelles. The UK has been far too dependent on EU food imports which in turn have decimated the UK’s Agricultural and Fishing industries. Now is the time to rebuild those industries and vastly improve our overall Food Security. The pressure on Sterling is a natural Market Response to change but that pressure will diminish. Once the UK begins to rebuild its Internal Market the Pound will enter a new era of stability and value.

  2. alison rayner says:

    Petition to rerun the EU referendum: There is a petition on the government website that has already reached over 1 million signatures to rerun the referendum, based on the % of people who voted. Please can you report this.


    Alison Rayner

  3. Andrew Goodman says:

    People always panic when the ground shifts in an earthquake, and there is always disruption but these seismic shifts are required to restore balance to the system. For too long, the economic benefit, largely because of giant bureaucratic structures like the EU, has been moving away from the ordinary working people of this and other countries, the pressure has been building and now it has been released. They have spoken, and they have made a good choice. This may look bad in the short term, but things are always improving and when other countries see that we are not only fine outside the customs union, but are really doing well, they will want to follow our lead. I’m immensely proud of myself and my fellow Brits for making the hard, but right, choice to ditch the EU. I hope we can maintain cordiality in many regards with EU member countries, even as far as allowing people to travel and settle freely, but this is a choice that WE make, and not the EU with its objective of the United States of Europe. I love Europe, and Europeans but we must lead by our example and thrive outside the archaic bureaucracy, that others might follow suit.

    1. Oliver Davies says:

      It makes sense to panic during an earthquake. Earthquakes are dangerous. An unnecessary earthquake will naturally prompt the question: who caused this? No one likes earthquakes. Since there are no objective grounds for the idyll outside the EU that you sketch, which is in stark contrast to those who study these things and are paid large sums of money to get them right, it is natural to surmise that you have other, ideological reasons for voting Leave. These seem to come in three sizes. The first is the ideology of the elderly who quite naturally have seen much very rapid change, who have paid off their mortgage and don’t need a job. This is the ideology of wanting the future to be like the past. While understandable as ideological aspiration, this cannot happen since the future belongs to the young. The second ideology seems to be that of the decent poor who take the chance to kick Etonian politicians when history gives them that rare chance. And the third is the ideology of the right-wing which dreams of taking over the leadership of the Conservative party without the inconvenience of parliamentary democracy or the challenge of all those millions of ordinary people who don’t like the Tory right, and wouldn’t vote for them in a month of Sundays. I think you have no idea about the economic and political consequence of this earthquake. I think you have done what all idealogues do: don’t bother with the truth, and hold your breath. But now we too have to hold our breath, and as you will see, we don’t like it.

  4. Malcolm Howard says:

    The whole point of the Leave campaign was to ensure the UK Partliament is sovereign. Well, it’s about time we proved this given the constitutional crisis we are facing, Parliament should vote to ignore the referendum (which is not legally binding anyway) and vote to remain in the UK. Then Cameron should instigate an immediate general election. All those in the Conservative and Labour parties who want Brexit should then join UKIP. If UKIP wins this general election then we genuinely have Brexit. But this is parliamentary democracy, not the shambles we have now.

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