Highlights of the EU Referendum Results:
- The UK voted 51.9% in favour to leave the EU, with 72.2% voter turnout.
- Scotland and Northern Ireland voted strongly favour of remaining as part of the EU (62% and 55.8% respectively). England and Wales voted to leave by a relatively narrow margin. Voter turnout in these four nations was strongest in England (73%), followed by Wales at 71.7%; both Scotland and Northern Ireland saw voter turnout below 70%, lower than the 84.6% during the 2014 Scottish referendum.
- The GBPUSD at one point plunged by more than 10% relative to the previous day’s UK close, but has since recovered and is holding near 1.38 (-8.5%).
- The risks to the global economic outlook our squarely to the downside. With the UK’s economy weighing in at only 2.4% of world real GDP, the primary channel for transmission stems from the intensification of market volatility and deterioration in business confidence in a global economy that sits on a thin foundation.
- There is little doubt that UK economic momentum will be revised down: some will mark estimates into recession territory, and others, like ourself, anticipate growth at roughly half the previous pace.
In terms of the U.S. and Canada, trade linkages with the UK are small (5% and 3%, respectively). This is not the main driver or concern. Under a straight forward model simulation, financial and confidence spillovers could shave real GDP estimates by 0.5 percentage point or more in the second half of this year. It is early days. Central bank and government responses to quell market concerns are critical at this stage to the economic projections
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