Further thoughts on the EU referendum result 

The problem is not our relationship with the European Union. That can be resolved in the coming years and, who knows, might turn into something more functional than the incoherent muddle it has become in the wake of the euro crisis. 

The real problem today are the shockwaves generated by the referendum result, which go much further – to the very fabric of what has cemented Britain’s place as one of the world’s leading economies. Think about it: what are the key factors that have made the UK a good economic bet in the past – for investors, for employees, for businesses looking to establish themselves somewhere prosperous?

It has chiefly come down to five things: 1. A stable political system; 2. A stable, predictable and reliable legal system; 3. London’s status as a global financial centre; 4. The UK’s reliability as a creditor and 5. The UK’s openness to trade, capital and migration flows. 

The reason markets and investors are quite so disturbed about the EU referendum result is that it puts every single one of these five pillars under question. 

1. The political establishment is now in ruins. The Prime Minister has resigned; much of the cabinet will doubtless follow. 2. The legal system is likely to change wholesale, given it is, for better or marked with EU laws and regulations. 3. Investment banks may well resettle away from the City of London if the UK is no longer a member of the passporting system (basically the single European market in key corporate finance services). 4. The public finances are likely to be thrown into disarray by the short and long term fiscal consequences of the post-referendum downturn; and for the time being there is no clarity on who will preside over those finances in the future. The credit rating is likely to be cut. 5. Finally, while it is possible that an independent non-EU UK could remain open to trade and immigration, those are not the kinds of mood messages transmitted by the a Leave camp during the campaign. 

Now, at this stage it’s worth emphasising that there is no God-given reason why a sensible administration could not surmount all the above issues. But it will take an almost superhuman effort in policy making and financial and legal diplomacy. 

Last night the pound fell by more than it has done in any trading period on record. Consider that for a moment: more than on Black Wednesday, more than during the financial crisis, more than in the 1970s, when Britain had to call in the International Monetary Fund. That is not an academic detail, it will affect everyone. Inflation will go up; Petrol prices will go up; many businesses trading overseas will struggle. It is hard not to presume that there will be a recession, as there has been every other time the pound fell anything like as suddenly and dramatically. The only question is how deep. 

Then there’s a deeper issue. Like most developed nations, the UK has many internal divisions – divisions between the wealthy and the less well-off, between the capital and the rural areas, between each of its regions. While we often make much of those divisions, they are no more entrenched than in many other countries. But, thanks in large part to the electoral system, they are rarely exposed in as brutal a way as they were last night. Every region of England, save for London, voted to leave. Wales voted to leave. Scotland and Northern Ireland voted to stay. Never has the UK looked so divided. 

Whoever takes over at Number 10 faces the greatest challenge of any British Prime Minister in decades 

3 thoughts on “Further thoughts on the EU referendum result ”

  1. Britain’s remaining goods export industries (such as machinery, as you documented in the past) will be glad for the drop in the pound. So that’s an upside….

  2. I don’t get this comment. The fact that the whole of the cuntry except London voted out shows a poitical cohesion not division. Its London that is out of step and needs to rethnk not the country. If I know the City it will survive, it will adjust tomthe new reality and quickly. Legal problems? English contract law is supreme – everywhere. The EU is based on Roman Law, quite different.

  3. Ironically and tragically The ref has so much more to do with our class system and rotten politics than the EU. At times today it felt like all this can’t be real. Almost like its a video game as it’s just one catastrophic situation after another but there is no pause or reset button. It’s shone a light on so much that we chose to ignore in that Britain is failing it’s working class. Leaving the EU won’t fix it. The U.K. Government needs to help the working classes. Yet it suits them not to. Today felt like a nightmare that I’m still wishing we could all wake up from.

    Who is it beyond Gove and Johnson that really wants us out of the EU? And what do they stand to gain from it? Whoever they are they have preyed on the ignorance of the most vulnerable to fulfil their agenda.
    Ignorance is not meant as a snearing comment, it is a failure of this country that we do not help educate people on matters that will define their lives.

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