Ex-Prime Minister David Cameron once said that if the UK voted to leave the European Union, it would create an ‘economic bomb’, causing seismic waves from here in Ottawa to Sydney. Recent figures seem to back that claim, as since over 17.4 million people voted to leave the EU in a shock result, we have seen great amounts of volatility in the financial markets.
Brexit – A Timeline
This timeline of the effects of Brexit on the markets since June 2016 helps to assess Mr Cameron’s claims. It traces the history of Brexit and shows how it has impacted the forex market, the FTSE and the UK 10 Year Yield. It also makes predictions as to what may happen when Britain leaves the EU on 29th March 2019.
When the UK voted to leave the European Union in June 2016, sterling slumped as investors began to price in two years of financial instability. However, immediately after the vote, a rise in UK exports led to the FTSE 100 (a stock index that represents the largest 100 companies on the London Stock Exchange) recovering from post-vote lows.
The UK and the EU start pre-emptive talks before the UK triggered Article 50. As ex-French President Francois Hollande warns on the effects of Brexit, the pound suffers from a flash crash.
Frustrated by a lack of parliamentary consensus around her talks with the EU, Prime Minister Theresa May calls for a snap election, hoping to increase her parliamentary majority and strengthen her negotiating hand. However, the move backfires and she loses her parliamentary majority entirely. The result causes the FTSE 100 to fall 3.64% in a week.
After a year of negotiations, the EU27 finally decide that enough progress has been made in the withdrawal negotiations to move to the second stage of the process. This causes both the FTSE 100 and the UK 10 Year Yield to rally and stabilise.
Theresa May returns from Brussels with a draft Brexit agreement. However, the deal is contentious, and Brexit Secretary Dominic Raab resigns. The so-called ‘Irish backstop’ is particularly problematic and is criticised by Remainers and Leavers alike. Although GPB/USD remains stable, the FTSE 100 plummets from 7,000 to under 6,800 within days. The UK 10 Year Yield also falls sharply.
Unsurprisingly, the House of Commons votes down the Prime Minister’s Brexit deal, meaning that Mrs May has to return to Brussels for further talks even though the EU leaders made it clear that she would not receive a better deal than the one she was offered. With a ‘no deal Brexit’ looking more likely, the markets tumble once more, with EUR/GBP falling from 0.9 to 0.88 on the same day.
After two years of extreme economic uncertainty and market volatility, it is still unclear what type of Brexit the UK will receive. However, with only a month to go until the deadline, a ‘no deal Brexit’ appears increasingly likely. Should this be the case, we’re likely to see the value of the pound tumble sharply, much like it did following the announcement of the referendum result, when GBP/USD fell from 1.42 to 1.36 overnight.
