Britain’s surprise decision to quit the European Union at the 23 June referendum sent shockwaves across global markets, triggered a political crisis in the UK, and pushed the economy into uncharted waters.
Here are six key charts that show the immediate impact of the Brexit vote:
1 The pound has fallen sharply against the dollar
As markets woke up on 24 June to news of the British vote to leave the EU, the pound fell to a 31-year low against the dollar. In the following days sterling slipped further against the US currency as fears about Britain’s economic outlook intensified and traders bet on lower UK interest rates.
Ending last week at around $1.29, the pound still has some way to go to hit its 1985 low of $1.05. However, some commentators have warned sterling could yet slump to parity with the dollar. Among them, Mohamed El-Erian, chief economic adviser to the investment company Allianz, who said sterling’s fate depended on the British government developing a credible plan B.
“The future value of sterling is a function of how quickly the structural uncertainty is resolved – if plan B is delayed and/or it doesn’t involve much of a free trade setup with the EU, it is not inconceivable for sterling to head to parity with the US dollar,” he told Reuters.
2 Sterling has also tumbled against the euro
It’s bad news for holidaymakers heading to the eurozone this summer, with the pound down more than 10% against the euro since the Brexit vote. On the day of the referendum £1 was worth €1.30 – now it is worth €1.17.
It is not just holidaymakers hurt by a weaker pound against the euro. Although it makes UK exporters’ products and services more competitive a weaker pound makes imports from the single currency bloc more expensive and that could stokeUK inflation.
3 The FTSE 100 initially fell but later recovered
The FTSE 100 had rallied ahead of the referendum on bets that Britons would vote to remain. When the leave result was confirmed the index initially slumped.
Losses were tempered, however, by reassuring words from the Bank of Englandgovernor, Mark Carney. His heavy hints that interest rates will be cut helped the index of the biggest London-listed companies recover in days following the vote.
The FTSE 100 is now at around 6,556, compared with a close of 6,338.10 on the day of the referendum.
The index has also had significant support from shares in those companies that report a large chunk of earnings in dollars. As the pound falls against the dollar their earnings have been flattered.
Mining firms too have been bolstered by a rise in the gold price, seen as a safe haven for investors in times of trouble. Other sectors on the index have fared far worse. Shares in housebuilders and most banks – all seen as particularly vulnerable to a Brexit-related downturn – are down markedly since the referendum.
4 The FTSE 250 fell and is still below its pre-Brexit vote level
The FTSE 250 index of midcap firms is seen as a better reflection of UK prospects. The index, more domestically focused than the FTSE 100, slumped 7% on the day the referendum outcome was confirmed. Unlike the FTSE 100, this index of smaller firms has not recovered all its Brexit-related losses. On Friday it rose to 16,130, still down 7% from 17,334 on the day of the referendum.
5 Gilt yields have dropped to record lows as investors seek safer assets
Government bonds in the the UK and elsewhere have been in demand since the referendum as investors ditch assets like shares and seek out safer investments amid worries about the impact of Brexit on an already fragile global economy. As a result, yields – which move inversely to prices of bonds – have fallen.
The yields on UK government bonds, also known as gilts, have set record lows in the wake of the referendum. The yield on 10-year gilts now stands at 0.778%, having almost halved from 1.376% on 23 June.
6. Banking shares took a hammering on sector health fears
Investors have been offloading shares in UK and other European banks on worries about the economic outlook and their likely profitably in uncertain times. The FTSE 350 index of bank shares is down 11% since the referendum.
The prospect of official interest rates falling even further from their record lows is bad news for banks. Low interest rates make it harder for banks to make a profit on the difference between the rates that are paid on savings and the rates that can be charged on loans.
At the same time, there are concerns banks could come under strain from a rise in bad debts if the housing market slows markedly or unemployment rises, making it difficult for customers to maintain their loan repayments.
Banks also face the prospect of losses on their loans to commercial property developers. The sector has come under scrutiny following the Brexit vote on fears commercial property prices could fall. Banks also use commercial property to count towards their capital buffers; at the end of 2015 around 55% of their core capital – their main safety net in a crisis – was based on commercial property.