Brexit after the vote
Equities and fixed income markets recovered losses quickly following the outcome of the vote, and it is only in foreign exchange — sterling fell about 15 per cent and remained weak — where the Brexit effect persists.
The UK has remained resilient because;
– Although investors woke to the news of Britain leaving the EU, its biggest trading partner and the Prime Minister resigning, Theresa May’s taking of office restored confidence in the markets and in the UK meaning that Britain would have a captain to steer the ship again in the right direction
– To stop capital flight from the UK and British banks, the bank of England loosened monetary policy by quantitative easing program pumping an additional £70bn into the economy and lowered rates to provide additional support for banks so they could offer cheap credit to households and businesses. This ensured that growth in the economy did not come to a halt, and consumer spending in both the UK and from abroad would continue. The governor vowed to take extraordinary measures to protect financial stability and he also offered to lend banks £250bn immediately if their normal sources of funding dried up.
– Immediately after the vote to leave the EU, economists slashed their forecasts for growth, mostly making the judgment that companies would put investment plans on hold and consumers would tighten their belts, spending a little less of their incomes and thereby reducing growth significantly. The consumer side of this equation was the more powerful and proved spectacularly wrong. The resilience of UK consumers surprised most economists .
– Mrs May’s initial handling of the Brexit issue sent shudders through currency markets almost every time she addressed the issue with talks of a ‘hard Brexit’ and being prepared to ‘accept no deal over a bad deal’, thus intensifying the relations between the rest of the EU. Since then investors have started to respect Miss May, the direction in which she hopes to take the UK in its best interests and feel that she has regained control over the situation again.