Britain’s Chancellor George Osborne just delivered his first speech since Britain voted to leave the European Union on June 23 in order to try and calm the markets before UK stock trading opened at 8 a.m. BST.
He said “I want to reassure the British people, and the global community, that Britain is ready to confront what the future holds for us from a position of strength.”
“We have worked systematically through a plan that today means Britain has the strongest major advanced economy in the world.”
He added, “I said we had to fix the roof so that we were prepared for whatever the future held. Thank goodness we did. As a result, our economy is about as strong as it could be to confront the challenge our country now faces.
“On Thursday, the people of the United Kingdom voted to leave the European Union. That is not the outcome that I wanted or that I threw everything into campaigning for. Now the people have spoken and we, in this democracy, must all accept that result and deliver on their instructions. I don’t resile from any of the concerns I expressed during the campaign, but I fully accept the result of the referendum and will do everything I can to make it work for Britain.”
Osborne outlined three challenges in his speech:
1. Volatility — “We see and will continue to see this in the financial markets.” However Osborne added that the Treasury, the Bank of England and the Financial Conduct Authority have worked with “every major financial institution” to deal with a Brexit result. He said “swap lines” are in place — which means the central bank is able to lend banks foreign currency if needed.
He added that he has been talking with European financial ministers, central banks, the US treasury secretary, speaker of the US congress and CEOs of the largest companies and financial institutions. He said the future “will not be plain sailing,” but people “should not underestimate our resolve. We are equipped for whatever happens. Britain’s financial system will help deal with any shocks.
2. Uncertainty from the delay in Article 50 — Osborne highlighted how it was best for Britain to delay the trigger of Article 50 in the event of Britain not having a Prime Minister. Cameron stepped down and a new PM will not be installed until around October. Osborne said that “we should only [trigger Article 50] when we have a clear view of what our relationship will be like in Europe and what clear arrangements we are seeking.”
He added that in the meantime, “there will be no changes to rights to travel, to live and work, or how the economy and financial system is regulated.”
Osborne noted that “some firms are pausing their decisions to invest or hire people and this will have an impact on the economy and public finances.” He did not say whether any he would fulfil his claims that a Brexit would mean a slash in spending and a raise in income tax, but he said he doesn’t “resile” on what he said during the the referendum campaigns.
3. To make sure Britain doesn’t “close itself off” — Osborne said that he is ensuring that Britain will “play an active part in the debate” to determine Britain’s long term economic relationship with Europe as well as America and Commonwealth countries.
“I do not want Britain to turn its back on Europe or the rest of the world. We must bring unity of spirit and purpose and condemn hatred and division wherever we see it. Britain is an open and tolerant country and I will fight with everything I have to keep it so. Today I am completely focused on the task in hand as Chancellor of the Exchequer to bring stability and reassurance.”
Osborne has notably been absent since the Britain voted for a Brexit and Prime Minister David Cameron announced his resignation the day the result was declared on June 24. Both Cameron and Osborne were firmly “Remain” supporters.
The final results showed that 51.9% voted to leave the EU versus 48.1% that voted for Britain to stay within the EU. There were 17,410,742 votes for Leave and 16,141,241 votes for Remain. The total turnout was 72.2% out of 46,499,537 people who were entitled to take part in the vote. This is a record number for a UK poll.
Markets have been in turmoil since the results.
A one point, the pound hit a 30-year low against the dollar in the immediate aftermath of the Brexit declaration. It has made a small recovery but is still substantially lower than it was before the referendum:
The FTSE 100 also fell off a cliff:
Meanwhile, European stocks on the Eurostoxx50 closed down on Friday at 8.62%:
During this time, Bank of England Governor Mark Carney said the central bank was “ready to provide”more than £250 billion, or $344 billion, of “additional capital to its normal operations.” Essentially the BOE is ready to prop up the UK’s financial system to protect it from the direct impacts of the Brexit.
But banks are already preparing for the worst.
“We expect a recession,” is one of the straightforward statements in the note, which explains that the forthcoming period of heightened uncertainty will crush economic momentum in the UK, with a 2.5% drag on GDP growth over the next 12 months and a “mild recession lasting three quarters.”
Morgan Stanley in another Sunday published at the weekend said that the Brexit will hit Britain’s and the world’s economy.
Analysts said “our FX strategists believe that GBP will ultimately fall to 1.25-1.30” and “our economists estimate that it could knock 1.5pp off UK GDP over the next 18 months.”
On top of that they added: “For the global economy, there could be a cumulative hit of ~0.5pp from our baseline between now and the end of 2017.”
So right now, not only is Britain’s future looking pretty gloomy in the event of a Brexit, so is the rest of the world’s growth.