FTSE 100 Plunges By £120bn After Brexit Vote

LONDON – The FTSE 100 Index saw more than £120bn wiped off the value of its constituent companies in the first few minutes of trading after the UK voted to quit the EU.

Dawn breaks over London as votes are counted for the EU referendum

It was one of the biggest falls in the index’s 32-year history, as it dropped by around 500 points, or more than 7%.

Meanwhile, the Bank of England said it was on standby to take action after the UK’s decision to quit the EU sent the pound plunging to a 31-year low amid market turmoil.

It said it was “monitoring developments closely” and pledged to “take all necessary steps to meet its responsibilities for monetary and financial stability”.

An employees of a foreign exchange trading company works as he is seen between British Union flag and an EU flag in Tokyo
A trader in Tokyo

Some experts predicted that the Brexit vote would send the UK back into recession and there was speculation that the Bank could cut interest rates from 0.5% to zero in coming months to cushion the economy from the expected blow.

Leave.eu supporters celebrate the result in Sunderland after polling stations closed in the Referendum on the European Union in London
Gallery: Reaction Across UK As Votes CountedA Leave.eu supporter wears a union flag paper hat after polling stations closed in the Referendum on the European Union in London

The Bank said it had undertaken “extensive contingency planning” and was working closely with the Treasury and other central banks after the poll which has rocked markets across the globe.

Leave.eu supporters celebrate the result in Sunderland after polling stations closed in the Referendum on the European Union in London
Gallery: Reaction Across UK As Votes Counted

 

Sterling fell to its lowest level since 1985 – marking a sharper dive even than on Black Wednesday in 1992.

CBI director-general Carolyn Fairbairn said it was now an “urgent priority” to reassure the markets.

“We need strong and calm leadership from the Government, working with the Bank of England, to shore up confidence and stability in the economy,” she said.

Ratings agency Standard & Poor reaffirmed its previous warning that the UK stood to lose its AAA credit rating following a Leave vote.

The pound saw wild swings after the polls closed – research showed the Remain side marginally ahead at 11pm and the pound headed sharply up to a six-month high against the dollar at $1.50.

But after regional results began to paint a clearer picture, the pound nosedived by more than 10% to $1.33.

It was the lowest level for sterling against the US currency since 1985. Sterling also saw a sharp fall against the euro, down 8%.

 

The collapse in the pound will be of immediate concern to holidaymakers who will find their money does not go as far in summer break destinations from California to the Costa del Sol.

It is also likely to push up some shop prices as imported goods will cost more for British consumers.

UK companies will also find that materials they buy, for example in dollars, will be more expensive.

However, the fall in the pound could make some British goods cheaper for foreign buyers, helping exports.

Elsewhere, Japan’s Nikkei index tumbled by 7% while in Hong Kong, the Hang Seng shed 5%. HSBC and Standard Chartered – listed in Hong Kong as well as London – fell 9% and 10%.

The price of gold – a traditional safe-haven during volatility – climbed to a two-year high.

Meanwhile, oil slipped by $3, or 5%, with expectations that the shockwaves from a Brexit will limit global demand.

But it was the fall in sterling that was the stand-out move.

Sky’s Economics Editor Ed Conway said: “The pound has absolutely gone through the floor.

“This kind of thing almost never happens, you have to go back to eras like Black Wednesday – when the pound left the exchange rate mechanism – to see such instant falls.”

He added: “More than a 10 cent move is, as far as I know, basically unprecedented.

“This is likely to go down in history as the most volatile day of trading for sterling in modern record.

“The pound is seen as a barometer of how well the UK economy is doing, so a lot of people will be very worried indeed.”

The reaction was all the greater for markets since they had confidently been pencilling in a Remain victory on the back of a series of predictions from pollsters and bookmakers – sending the FTSE 100 and Index and the pound higher in Thursday trading.

The billionaire currency investor George Soros warned earlier this week that the pound could go as low as $1.15 in the event of a Leave vote.

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