Brexit is going to hurt. That was a central underlying message to UK chancellor George Osborne's statement this morning . And while his words were ostensibly designed to "calm" the markets, sterling's fall has continued and bank shares remain under pressure. Osborne said he would not "resile" from his view before the referendum that Brexit would damage the economy . Investors clearly agree. Here are the key take-outs from what he said and what has happened since.
1 . The markets : Osborne spoke before the markets opened, but sterling was already on the slide overnight and this continued after his comments. Osborne did not pretend that all will be well . He indicated that market volatility inevitably lay ahead, though said the UK authorities were prepared to deal with it. He said he had weekend contacts with the Bank of England, the IMF and a range of other bodies and that there had been extensive pre-planning by the financial authorities. However he conceded that it would not be plain sailing. A quick look at the markets suggest he is right. Sterling has hit new 30-year lows against the US dollar, equities remain very nervous and money is flooding into safe havens such as Government bond markets. When this will start to settle is anyone's guess, with markets driven by both economic and political worries and uncertainties.
2. The banks : Banks took a heavy hit on Friday and are under pressure again today. Osborne spent time taking about the strong capital position of the sector and preparations by the Bank of England to make sure it had enough liquidity and could support the sector. A key focus in coming days will be on the financial sector across Europe as investors fret about the impact of low growth and interest rates which - because of the Brexit hit to growth - will stay lower for longer . There is talk of the Italian government looking for EU clearance for special measures to support its banks. And trading in RBS and Barclays had to be briefly suspended in London as they lost 8 per cent in value. Irish bank shares are down heavily again this morning, leading the ISEQ index more than 7 per cent lower.
3. The economy : Osborne had warned of dire consequences for the economy in thy event of a Brexit with a mini budget needed to cut spending and hike taxes .He neatly side-stepped that this morning , saying officials would examine the revised outlook heading into the Autumn and it would be up to a new Prime Minister to decide what to do. However it is vital for Britain to retain market confidence as it has a significant current account deficit on its balance of payments and needs to continue to attract foreign capital . If growth does slow, then Budget measures will be needed in Britain, threatening to slow growth further.
4 . The talks : Osborne followed the Cameron line that it was up to the next British prime minister to trigger the notification to Brussels that the UK wanted to leave - the first key step before any talks can start . However he also said that before Britain entered takes,it needed to be sure what kind of future relationship it wanted with the EU.There was speculation at the weekend that working this out could take soon time. Osborne also said that he wanted Britain to retain a close trading relationship with Brussels . Boris Johnson, in a newspaper column today,said Britain should remain in the EU single market. If this happened it would be ideal for Ireland. But whether it can is very much open to question. If Britain wants to leave the EU but to retain Norway-style access to the EU single market as a member of the so-called European Economic Area,this would oblige it to follow most of the EU rules and regulations. And wasn't scrapping them the reason why it's people voted to leave ?
