The historic referendum ushers in an era of uncertainty that unhinges markets.
The United Kingdom has voted 52 percent to 48 percent to exit the European Union bloc of nations, according to tabulations from the BBC, and the “Brexit” referendum outcome is roiling markets and driving down the value of the British pound sterling.
In fact, the swift market reactions in Asia may cause the Bank of England to intervene to help prop up the pound, according to BBC reports.
The BBC also reported that turnout among voters hit 71.8 percent and that more than 30 million people voted in the referendum “the highest turnout at a UK election since 1992.”
In early morning global trading, the pound was dropping to levels against the dollar not seen since the mid-1980’s with 1 GBP equaling 1.33001 USD, according to the XE Currency Converter website. The value of the pound may continue to drop throughout the day.
The vote results counter conventional wisdom that predicted those who want to stay with the E.U. would prevail. In a statement dated June 14, securities industry advocate SIFMA via its Economic Advisory Roundtable made many forecasts, including an assertion about Brexit.
“When asked about the upcoming June United Kingdom vote on the potential exit from the European Union in June (“Brexit”), respondents unanimously expected the UK to stay in the EU. When asked about the potential impact of a UK exit, respondents were unconcerned,” according to SIFMA.
For weeks, prognosticators have been making predictions about the impact of the referendum. Aaron Klein and D.J. Nordquist at the Brookings Institution, a nonprofit public policy organization based in Washington, D.C., detailed some of the repercussions upon the U.S. market in a blog posting, “Is Brexit good for America? Nope,” dated June 15. Klein is a fellow and Nordquist chief of staff in Economic Studies at the Brookings Institution.
“The U.K. leaving the European Union would mean substantial upheaval for global markets, financial firms, and businesses that would likely leave London,” according to the blog. “Markets like certainty, and they do not want nor expect this kind of change. Already, markets are nervous, U.S. and global stocks are slumping, and money is pouring into safe haven sovereign debt: the yield on the 10-year U.S. Treasury note is approaching record lows, while Germany’s 10-year note broke a new record low — a negative yield! Investors in Europe are so skittish they are willing to pay money, over a decade, just to hold German debt.”
However, Klein and Nordquist point out that there would be short-term windfalls for the U.S. markets
“Yet some may believe that a Brexit would advantage the U.S. in the short-run — specifically a flight to safety reducing interest rates and potentially increasing American competitiveness in financial services compared to London, as London is Europe’s financial hub,” according to the posting. “In the short-term, it is possible that some sectors in the U.S. would gain, particularly in finance with New York and Wall Street gaining an event firmer foothold against London as the global financial capital.”
Overall, though, the Brookings analysts say that Brexit would spur “a global fall in equity prices as investors fear the impact the vote could have on Britain’s economy, and could spell the first falling domino of European Union disintegration,” they say.
“Keep in mind the vote for Brexit would only be the first step for the United Kingdom’s actual departure the European Union. Terms of the departure would have to be mutually agreed to and those terms would set substantial precedent for other nations that chose to leave; the EU may try to punish the UK for its departure,” according to Klein and Nordquist.
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