Pound Plunges To Lowest In 31 Years | Independent Newspapers Limited
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Pound Plunges To Lowest In 31 Years

Posted: Jun 25, 2016 at 4:32 am   /   by   /   comments (0)

The pound fell dramatically as the referendum outcome emerged. At one stage, it hit $1.3236, a fall of more than 10 percent and a low not seen since 1985.

The Bank of England said it was “monitoring developments closely” and would take “all necessary steps” to support monetary stability.

“This is simply unprecedented, the pound has fallen off a cliff and the FTSE is now following suit,” said Dennis de Jong, managing director of UFX.com.

“Britain’s EU referendum has been a cloud hanging over the global economy for the past few months and that cloud has got very dark this morning.

The London stock market immediately plunged in the wake of the UK’s referendum vote to leave the EU.
In the opening minutes of trade, the FTSE 100 index fell more than 8 percent before regaining some ground by mid-morning.

Banks were hard hit, with Barclays and RBS falling about 30 percent, although they later pared losses to about 17 percent.

In the short run, uncertainty about Britain’s future relationship with the EU, its largest trading partner, could push the UK into a recession.

Market watchers predict an “explosion of volatility” on Friday morning as the markets process the implications of Britain’s exit. Many economists expect both the British stock market and the pound to open lower on Friday morning. Britain’s Chancellor of the Exchequer, George Osborne, even hinted that he could suspend stock market trading if Britons voted to exit the EU.

In the long run, the situation could be worse. If Cameron’s government falls, Britain’s prospects of negotiating a favourable deal with the EU could be weakened. The EU may decide to strike a hard bargain to discourage other countries from leaving the EU. Or the UK’s new leader might not be willing to accept the kind of restrictions that come with a Norway-style deal.

“If you are Nissan or some other car producer with major production in the UK, today, the same safety standards and environmental standards allow you to sell everywhere in the European market,” Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics, told me. But if the UK leaves the EU, “you would no longer be able to sell into other European markets, not because you face a small tariff but because you’d have to go through another set of safety certifications. This kind of thing would be repeated in every industry you can think of.”

Critics say the economic effects could be large. The UK government has estimated that exiting the EU could cause the British economy to be between 3.8 and 7.5 percent smaller by 2030 — depending on how well negotiations for access to the European market ultimately go. Other reports have found smaller but still significant impacts.