Britain shocked the world on Friday when the nation made a momentous decision to leave the European Union.
While the ramifications of the outcome of Britain’s referendum will take time to play out, the effects of the so-called “Brexit” are already being felt around the globe, including in Australia.
Here are six things you need to know about the fallout from Britain’s decision to leave the EU.
As the outcome of the referendum become known on Friday afternoon, international stocks and currency markets responded quickly.
In Britain, London’s main FTSE 100 index plummeted by close to 9%, before recovering to close at a loss of 3.2%.
The S&P ASX200 closed 3.3% lower on Friday, with approximately $50 billion in value wiped from the Australian stock exchange, while stock exchanges in the US, Germany, France and Ireland also recorded large losses.
According to some estimates, more than US$2 trillion was wiped from global markets as a result of the sell-off.
The British pound fell to its lowest level against the US dollar since 1985 on Friday and was buying US$1.32 on Friday afternoon.
Currencies around the world also took a hit, with the Australian dollar dropping 3.4% on Friday to trade at 73.4 US cents. At the time of publication, the Australian dollar was trading at 74 US cents.
Volatility in international markets is unlikely to subside any time soon as Britain and the rest of the world grapple with what a Brexit will mean.
According to Ric Spooner, chief market analyst at CMC Markets, the size of the losses recorded on Friday will have investors concerned.
“The savagery of Friday’s moves had a lot to do with the fact that markets were wrong-footed by Brexit,” Spooner said in a statement this morning.
“They went into the event on a note of confidence and having removed the risk premium built into prices earlier in June. However, the size of the moves themselves will leave markets jittery.”
Spooner said potential market risk from the Brexit vote will come from two potential sources.
“The first and most direct concerns relate to the UK,” he said.
“Markets will remain nervous until they get some clarity on the UK’s leadership and how and when the negotiation of the UK’s departure from the EU will proceed.
“These risks are being reflected in another weak session for the Pound this morning. However, the UK risk is not a banking crises and the impact on Australian markets is likely to be limited.
Spooner said the second area of concern is whether Brexit will “trigger a period of major uncertainty across Europe”.
British Prime Minister David Cameron announced his resignation shortly after the outcome of the referendum was known, having backed the campaign for Britain to remain in the EU.
Speaking on Friday, Cameron said he believed it was “in the national interest to have a period of stability, and then the new leadership required”, according to the ABC.
“I will do everything I can as Prime Minister to steady the ship over coming weeks and months, but I do not think it would be right for me to try to be the captain that steers our country to its next destination.”
Cameron is expected to stay in office until October, as talk now turns to who is most likely to be the next British Prime Minister.
The opposition Labour Party has lost 10 senior members over the weekend but leader Jeremy Corbyn is so far ruling out stepping down.
The ABC reports Corbyn has lost support from 12 members of his team, some of which believe he did not campaign hard enough for Britain to remain in the EU.
Former London Mayor Boris Johnson lead the campaign for Britain to leave the EU and is tipped to be a likely Prime Ministerial candidate.
In his column in The Telegraph newspaper on Sunday, Johnson said leaving the EU would not bring “threats” but instead “golden opportunities” for Britain.
UK voters could soon be forced to head to the polls again, if Cameron’s replacement as leader of the Conservative party opts to call an early election, according the Wall Street Journal.
Alternatively, the British Parliament could prompt a national election if two-thirds of parliamentarians support going to the polls or if the government is subject to a successfully vote of no confidence.
The possibility of an independent Scotland is again making headlines, after Scotland’s First Minister Nicola Surgeon said over the weekend her government will seek advice on Scotland remaining a member of the EU and prepare legislation to allow another vote on Scottish independence.
Scotland conducted an independence referendum in 2014, which was defeated 55% to 45%.
In Friday’s referendum, 62% of Scottish voters supported remaining in the EU, according the ABC.
“We will seek to enter into immediate discussions with the EU institutions and with other EU member states to explore all possible options to protect Scotland’s place in the EU,” said Sturgeon.
“We are determined to act decisively in a way that builds unity across Scotland.”
With less than a week until the Australian federal election, both major parties have made the case of Australia needing stable economic leadership.
During the Liberal Party’s official campaign launch on the weekend, Prime Minister Turnbull said only a Coalition government can deliver the “security” and “leadership” that the Australian economy needs.
“The shockwaves in the past 48 hours from Britain’s vote to leave the European Union are a sharp reminder of the volatility in the global economy,” he said.
During an interview on Saturday, opposition leader Bill Shorten said the “major lesson” from the situation in Britain is “the need to elect a government that can deliver stability and deliver unity”.
Editor
Eloise is an experienced business journalist and editor, who has held senior editorial roles at SmartCompany since 2014. Prior to joining SmartCompany, Eloise was news editor at Books+Publishing, the trade press for the Australian book industry. Eloise has degrees in media and communications, marketing and business management, and political science. You can follow her on LinkedIn, and Twitter at @ellykeating.
Comments