FTSE loses N$2.6 trillion after UK votes to leave EU

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Britain risks slower growth, higher inflation and even recession in a decision to leave the European Union (UK) warned Bank of England Governor, Mark Carney, just before the referendum to exit the world’s largest economic bloc.

His warnings have not yet set into the minds of many British but already the UK is reeling from the effects of a ‘leave’ vote to exit the EU as the FTSE wiped out about N$2.6 trillion (about £125 billion) on Friday when world markets struggled to come to grips with the decision to exit the EU. The FTSE, which originally stood for Financial Times Stock Exchange, is the common name for a set of British stock market indices that show how well companies listed on the London Stock Exchange (LSE) are performing.

“Global markets mirrored the dramatic moves in London, with stocks and currencies plunging to historic lows. At the open, the global sell-off was intense and almost immediate with close to US$2.08 trillion, about N$31 trillion, wiped off equities globally at the close,” said Suta Kavari, Investment Strategist at Capricorn Asset Management. Kavari added that apart from the economy costs, a Brexit will affect immigration and many other aspects, and said it will take years for the full extent of the consequences to be realised and become clear.

“Brexit will continue to linger and will fully be entrenched in our lexicon until Britain actually leaves the European Union. Article 50 of the Lisbon Treaty is the only one legal mechanism for a country to leave the EU. Britain still remains a member of the EU until such time as Article 50 is invoked and the formal process of leaving begins. Under Article 50 it is up to the other 27 European countries to decide the terms of Britain’s exit, with the British at the table,” Kavari explained.

Article 50 sets a two-year deadline for the exit process. This deadline can only be extended by a unanimous vote of all 27 countries. If the deadline passes and no deal is agreed on, Britain ceases to be an EU member and reverts to trading with the EU on normal World Trade Organisation rules.

“But even if a trade relationship was agreed on, the process of ratifying the deal would take an additional two years. The new relationship would have to be approved by all 27 remaining EU members and ratified by their national parliaments, as well as the European Parliament,” said Kavari.

He mentioned the example of the EU’s trade deal with Canada, which was completed about two years ago. That deal has still not been ratified.

“Britain is not involved in any of these negotiations, and is essentially confined to the sidelines during this whole process. A position I am sure they will get used to. How’s that for taking back control?” Kavari questioned.

Meanwhile, the British High Commission yesterday issued a statement explaining Prime Minister David Cameron’s resignation in the light of his support for the UK remaining in the EU. Cameron said he would resign before October to enable a newly elected leader to take forward the exit negotiations.

“Under a new prime minister the UK will serve notice under Article 50 of the Treaty of European Union, which will start the formal and legal process of leaving the EU. That process will take two years and in the meantime the UK will continue to be a full member of the European Union. It is too early to say what the results of those negotiations will be, but the UK government is committed to seeking the security and prosperity of the whole of Europe and to remaining one of the top six performing economies in the world,” read the statement from the British High Commission.

It continued: “The UK is a long-standing supporter of free and fair trade and plans to remain so. It is too early to say how the negotiations will affect trade agreements, including the recently signed Economic Partnership Agreement between the EU and SADC members.”

Last week Frans Uusiku, an economist at stock brokerage Simonis Storm Securities, warned that Britain’s exit would also affect EU trade practices, which could mean an increase in the cost of doing business with EU members.

Uusiku pointed out that European trade practices are influenced by other European countries, for example the movement of business people. “It would become very difficult for business individuals to move from one country to another, and that is likely to add to the cost of doing business,” he said.

He added that Britain’s exit would also mean the British Pound would most likely depreciate, which would influence the general level of pricing in the UK.
– Additional reporting by Nampa

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