Britons stun the world by voting to leave the EU

Britons stun the world by voting to leave the EU

24-06-2016 | インサイト

Britons stunned the world and sent financial markets into freefall after voting to leave the European Union in an historic referendum.

  • Léon  Cornelissen
    Chief Economist

Speed read

  • UK votes 52%-48% to leave the EU on high turnout of 72%
  • Pound crashes by 10% against the US dollar and 7% vs the euro
  • Result brings down PM and may lead to break-up of UK
  • Two years of difficult negotiations once Article 50 is triggered

“It was contrary to what the polls and betting markets were predicting, so it comes as a huge shock,” says Robeco Chief Economist Léon Cornelissen. “But then it is a narrow margin, so this doesn’t mean that the UK will automatically leave the EU, because it is up to the UK government to trigger Article 50 of the Lisbon Treaty which would start the divorce process.”

“And given the pro-EU majority in the UK Parliament, which by convention is sovereign, it cannot be ruled out that there will be a general election in the UK. So in the meantime we have huge political uncertainty as well. In the short term we will see an awful lot of uncertainty and the UK will probably lose its triple-A credit rating with S&P.”


Pound plummets

With only a handful of regions left to be counted, 17.3 million people or 52% had opted to quit the EU after 43 years of frequently troubled membership, while 16 million or 48% wanted to remain. The turnout was high at 72%. David Cameron, who had led the Remain campaign, resigned as Prime Minister once the news was confirmed.

The pound dropped to its lowest level against the US dollar since 1985 on the news on fears over future trade after leaving the Single Market, a possible recession, and years of discord and uncertainty. By 6:00h London time, sterling had fallen over 10% to USD 1.33 and over 7% against the euro to EUR 1.21. The 10-year British Gilt dropped 30 basis points, and equity futures predicted a 10% fall in the UK’s FTSE 100 index when it opens.

In what many see as a very British revolution, voters defied the advice of the Remain camp, which had been supported by all the major UK political parties and the bulk of Parliament, and backed the Brexit camp, which was supported mainly by anti-EU independents and English nationalists.

Huge shock

Cornelissen says he now predicts a UK recession, the prospect of which was raised during the four-month campaign by the OECD. It predicted long-term economic contraction of between 2.7% and 7.7% in the run-up to 2030, with a baseline scenario of -5.1%, though the Brexit camp dismissed this as ‘scaremongering’.

“For the UK economy, this is undoubtedly bad news,” says Cornelissen. “It was already suffering because of the Brexit uncertainty, demonstrated by the UK’s increasing current account deficit which has risen to 7% of GDP, which is enormous for a developed economy. So the UK is now vulnerable to capital flight, and that makes the plunge of the pound an understandable reaction.”

‘The bigger risk is Italy, and the possible rise of nationalism in France and Germany’

“Investments for the time being will continue to suffer. Consumer confidence will also be damaged by the turmoil in the markets, so a recession in the UK does look likely. Business sentiment in Europe could also be hampered due to the rising fears of contagion – we could now see exit votes called by other Euro-skeptic parties across Europe. The first indication of the political fallout will come this weekend with general elections in Spain. The bigger risk is Italy, and the possible rise of nationalism in France and Germany. This is all generally bad for the business climate.”

Break-up of the UK?

The result is set to have major repercussions for the future of the UK, since Scotland and Northern Ireland voted to remain. England and Wales both voted to leave, though voters in the capital city London were significantly in favor of remaining. Commentators now predict a second referendum for stanchly pro-EU Scotland to secede from the UK.

David Cameron’s resignation will lead to an election for a new leader of the ruling Conservative Party, which may well be former Mayor of London Boris Johnson, who was a major force in the Brexit camp. Nigel Farage, leader of the anti-EU United Kingdom Independent Party (UKIP) may also get a role in a future government.

“So in fact it would be up to a new government to trigger Article 50, and they may prefer to wait a while, given the slim majority.”

‘All districts in Scotland voted for Remain, so this makes a new referendum likely’

“All districts in Scotland voted for Remain, and the ruling SNP called for Scotland to stay in the EU, so this makes a new referendum likely. It will also be destabilizing for Northern Ireland. So it could lead to the break-up of the UK. This further weakens the UK government’s negotiating stance with the EU.”

New trade agreements

It is also uncertain what type of trade agreement a future UK government will be able to negotiate with the EU following its exit from the Single Market. The country must also figure out what to do with the millions of EU citizens living with the UK under freedom of movement rules, and the further millions of British expats living in the EU.

“Once the referendum result is enacted by Parliament, the UK faces a lengthy divorce from the EU, with a minimum of two years before full separation is achieved,” says Cornelissen. “These negotiations will be very difficult, and it is unlikely that we’ll see a result in the two-year deadline once Article 50 is triggered.”

“The EU will certainty play hard ball; it won’t want to encourage further exits, so the UK will have to pay a price for life outside the EU. Of course if the new UK government opts for the Norway model then it would be easy to make a deal with the EU – but remember that Norway pays a contribution to the EU, and actually it pays even more per head than the UK does. Norway also has to accept free movement of labor; on many levels they are essentially part of the EU but without fisheries and agriculture. So if this comes to pass, then the whole Brexit referendum won’t have made much difference, and will be very difficult to sell to the UK electorate.”

“A Canada-style trade deal would be more likely, but that would take years to agree, and wouldn’t cover all trade. The minimalist option would be the WTO model, but this would incur many tariff and non-tariff barriers and would in economic terms be much more damaging. This referendum will have economic consequences for years to come.”


当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。




商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会