The Brexit vote caught markets off guard and sent shockwaves through most of the world. The decision rocked the markets and sent the Pound Sterling to 30-year lows against the Dollar – and it will change Europe’s post-World War II order.
It unseated David Cameron as Britain’s prime minister and wrecked the careers of many other British politicians, culminating in a period of political instability and absence of leadership at a time when a deeply divided country has to prepare for life outside the European Union. All of this and more happened against the backdrop of market turmoil and economic vulnerability.
It was a week or so of high drama, with the script being written as it unfolded.
I was privileged enough to be there, to witness this historic decision and its ramifications first-hand.
The news was met with shock and disbelief – and although it was expected to be a close call, the Remain camp was more confident that it would carry the vote in the week running up to Thursday 23 June. The result revealed deep division across Britain, with prosperous London and Scotland voting by large margins to stay in. Working-class towns, Wales and rural England heavily backed the Leave movement, and were not to be swayed by the Project Fear campaign, which backfired badly on the Remain campaign. Instead, the British voters expressed their very real fears of uncontrolled immigration and the repeated failures of successive British governments to bring arrivals from both inside and outside the EU under control.
The division in the UK was reflected by the way the media reported on the historic decision. The Daily Mail ran the headline ‘Take a bow Britain’ on the day following the referendum result, describing the outcome as ‘The day the quiet people of Britain rose up against an arrogant, out-of-touch political class and a contemptuous Brussels elite’.
The FT Weekend was more reserved, running the headline ‘Britain breaks with Europe’. ‘Britain has swept away 50 years of foreign policy, turning its back on the EU’ This was followed by last Monday’s more dramatic ‘Political turmoil and isolation: UK confronts new reality’, with the paper’s daily reports on the issue appearing under the headline ‘Brexit crisis’.
There were no victory parades or celebration parties in London or among my work colleagues, business associates or friends.
It was more a case of extreme disbelief, shock, even some embarrassment, and in some circles anger at Cameron for his big gamble to call this referendum in the first place, and then rush it without proper preparation or a meaningful deal from his erstwhile EU colleagues. In retrospect it was a big mistake on the part of the EU not to give Cameron the concession of an upper limit on immigration.
Cameron ignored the negative views of his predecessors Clement Attlee and Margaret Thatcher on referendums, and will now go down in history as the prime minister responsible for taking Britain out of the EU.
In the immediate aftermath of the Brexit vote a sense of doom overwhelmed the EU as its leaders contemplated that the British event might be contagious, encouraging other member states to follow suit. As time passed, however, it seemed as if they were closing ranks, and that the economic and financial repercussions suffered by the UK since its vote to leave could be just the thing to take the wind out of the sails of the Eurosceptics in their midst. But as the EU prepares for its first divorce, there’s some anxiety that British voters might have set in motion a cycle of disintegration in the organisation that has embodied post-World War II European cooperation.
This doesn’t mean the EU will fall apart, or even that more countries might leave. But the centrist politicians and Brussels bureaucrats will have to do some serious soul searching and change for the better if they want to fend off the populist forces and rise of nationalism all over Europe.
In the aftermath of the result the Dutch premier showed no restraint in commenting that ‘England has collapsed politically, monetarily, constitutionally and economically’. These are harsh words, and perhaps an overreaction.
What is true though, is that there seems to be no plan, not in the UK nor in Brussels, for the orderly exit of Britain. That creates uncertainty, and markets dislike uncertainty.
The rating agency Standard & Poor’s took only a few days to cut Britain’s coveted triple-A sovereign rating by two notches. While it’s unlikely to have immediate financial implications, it should be taken seriously as a warning of the risks now facing the UK’s economic prospects.
The full implications of Brexit have yet to emerge. UK blue-chip stocks recovered their losses towards the end of last week, and the Pound has made up some lost ground as the Governor of the Bank of England and other leading figures sought to reassure markets and investors. The challenges are huge, and investors run the risk of not facing up to the severity of the political and economic issues that now confront the UK.
However, let’s keep in mind that Britain hasn’t gone to ground – it remains a country that is easy to do business with, with the advantages of language, time zones, a respected legal system, depth of experience and access to large pools of capital and power enterprise.
What is required now is first and foremost political stability, which can be brought about by new optimistic leadership, ably defining and negotiating the UK’s role and place in Europe and the world post Brexit.
Most important is to rebuild confidence – confidence that there’s a plan, confidence in the UK’s economic prospects outside the EU, and confidence in its new role in Europe and the wider world.
Until then, uncertainty will prevail, planned deals will be put on hold, investors will be reviewing their options, and the doomsayers will call the end of Great Britain. This will cause more volatility and unpredictability in markets and we will remain extremely cautious. The Brexit script is still being written.