Brits Brace for Economic Repercussions 06/25 07:21
The British were warned for weeks that a vote to leave the European Union
would result in economic pain. Now they'll find out whether it will.
LONDON (AP) -- The British were warned for weeks that a vote to leave the
European Union would result in economic pain. Now they'll find out whether it
U.K. financial leaders are scrambling to reassure households, businesses and
investors that they can contain the doom and gloom they had predicted in case
of a British exit, or Brexit. The pound plunged to its lowest level in over 30
years on Friday, raising concerns about price inflation, and shares in the
U.K.'s biggest banks and real estate builders posted double-digit declines as
economists predicted the country would fall into recession.
Economists slashed their forecasts for Britain, with some expecting a
recession and next to no growth next year. That's a sharp reverse for an
economy that had been among the best-performing in the developed world in
In an early sign of problems, Moody's Investors Service downgraded the U.K.
outlook from "stable" to "negative." The referendum result, it said, "will
herald a prolonged period of uncertainty for the UK, with negative implications
for the country's medium-term growth outlook."
Holly Miller, 32, said the vote would affect her economic life profoundly.
"I'm quite shocked by it all," she said. "I'm just applying for a mortgage
so we're worried about that."
Only the soothing reassurances of Bank of England Governor Mark Carney
managed to ease the market carnage on Friday, as he pledged to stabilize
markets if needed. But beyond the short-term market turmoil, the concern is
what the vote means for the national economy and its 64 million people.
Before the vote, with campaigning in full swing, the British Treasury had
estimated that an exit from the EU would cost the country the equivalent of
4,300 pounds ($5,900) per household. Tax receipts would face a 30 billion
pounds shortfall that would have to be filled with tax increases on income and
inheritance. House prices, the Treasury had said, could be as much as 18
percent lower by 2018 than if the country hadn't left the EU.
Campaigners for "leave" dismissed this as scare-mongering. With the vote
result confirmed, the "remain" camp sought to shift away from warnings and into
damage control: trying to maintain confidence in the business community and
The City of London Corporation, which represents the financial services
industry, a big maker of money and jobs for the country, sought to downplay the
impact of the vote on the City, the square mile that is the heart of London's
"The City of London has thrived as a financial and trading center for more
than a thousand years and will continue to do so," Mark Boleat, policy chairman
for the Corporation, said in a statement. "There will be no mass exit of banks
and financial institutions from the square mile. While there will be
uncertainty as Brexit negotiations go on we are still the financial center of
the fifth-largest economy in the world."
Some companies, particularly banks, had said they could move jobs away from
London if Britain leaves the EU. That is likely to cost some jobs. How many is
yet to be seen.
The British economy could also find it more costly to raise money. Ratings
agency Standard & Poor's is considering downgrading the country because of the
uncertainty related to the vote. A lower rating could mean higher borrowing
costs for the government --- and in the longer term, less money to spend on
schools, hospitals and roads.
"The real question now is how badly the EU will punish the U.K. for this
decision," said Megan Greene, chief economist at Manulife Asset Management.
Others were looking on the bright side.
At First Property Group, a London-based real estate investment firm, Chief
Executive Ben Habib, who backed leaving the EU, said the vote means Britain
will now be able to drive a better deal with the rest of Europe.
Supporters of the "leave" campaign had accepted that there was a potential
economic cost to leaving the EU, but have claimed it is a short-term price to
pay in exchange for greater control of policies like immigration and borders.
"We now have the foundations for a very good negotiation with the EU," he
said, while minimizing the market turmoil. "The markets are gyrating, but these
are gyrations and will not materially affect our economy."
Habib said the drop in the pound would help British exporters by making
their goods cheaper and more competitive in the global marketplace.
Habib's colleague and friend George Digby, however, was less upbeat. He had
voted to remain and said the best he could do was wait and see if there is
significant economic damage, as his "remain" camp had claimed.
"I hope I am proved wrong on that score," he said.