Osborne insists economy is ‘strong’ despite FTSE 100 losses hitting £85 BILLION over two days
THE Chancellor of the Exchequer insisted the UK economy was strong in spite of shock Brexit vote - but markets in turmoil
THE UK’s top stocks tumbled more than 2.5 per cent today – bringing the FTSE 100’s losses over two days to £85billion.
Sterling also fell to a new 31-year low against the dollar, with £1 worth just $1.314 at one point, before a modest rally.
The markets are also increasingly predicting the Bank of England will cut its interest rates in the coming months – or even take it below zero.
The 10 year gilt yield – the rate on long-term bonds issued by the government – also fell below 1 per cent for the first time ever yesterday.
London’s FTSE 100 appeared to take confidence from the Chancellor’s steadying words early on – falling just 0.8 per cent on opening.
But heavy losses among banks, airlines and home builders sent it tumbling below 6,000.
It closed down 156.49 points at 5,982.20, a loss of 2.55 per cent.
Royal Bank of Scotland stocks lost another 15.1 per cent today – falling to their lowest level since the financial crash.
Barclays closed down 17.3 per cent and Lloyds Banking Group fell 10.3 per cent over the day.
Budget airline easyJet saw its share price fall 22.3 per cent, with British Airways’ owner International Airline Group dropped 15.9 per cent.
In the housing market, Taylor Wimpey fell 14.9 per cent and Charles Church-owner Persimmon lost 13.8 per cent.
It comes as ratings agency Standard & Poor’s tonight stripped the UK of its top credit grade in the wake of the vote to leave the EU.
It downgraded the country’s sovereign rating by two notches, from AAA to AA, saying the vote is a “seminal event” that “will lead to a less predictable, stable and effective policy framework in the U.K”.
The FTSE 250 index of smaller companies fell even further, dropping 7 per cent over the day.
Tony Cross, market analyst at Trustnet Direct, said: “It’s been another volatile day for equities right across Europe as confusion continues to reign over where the UK now stands in terms of triggering Article 50.
“Only once this is done can the country being the process of exiting the European Union, but with it being down to Westminster to call the shots, this seems to be morphing into a game of political brinkmanship.
“Perhaps because of this, we’re not seeing those worst-case scenarios that were mooted last week as being played out – the FTSE-100 has ‘only’ lost around a quarter of what some banks predicted.”
Bank are considered vulnerable, because they have to have a ‘passport’ to conduct business in the European Economic Area.
If Britain leaves the EU, it raises serious questions about how UK-based financial groups will be able to operate on the continent.
Michael Hewson, chief market analyst at CMC Markets UK, said: “While the Chancellor’s measured tone appears to have helped alleviate concerns about a rudderless UK ship, concerns about the banking sector continue to be a pressure point for investors, as dark threats about the removal of financial pass-porting continue to weigh, and yields continue to fall.”
£1 was tonight worth $1.32, compared to $1.50 late on Thursday.
The pound also continued to fall against the euro, with £1 now worth 1.2 euros.
Chris Saint, senior analyst at Hargreaves Lansdown, said: “Further significant losses for sterling aren’t out of the question, especially if incoming data confirms the UK economy’s slowdown…
“Britain’s vote to leave the EU has driven investors towards safe haven currencies, such as the Japanese yen.”
The Irish stock market closed down 9.9 per cent.
Germany’s Dax and France’s CAC 40 both lost 3 per cent.
But in Japan, the Nikkei 225 closed up 2.39 per cent – after losing 7.9pc on Friday, its biggest loss since the financial crisis.
The UK markets are now pricing in a 15 per cent chance of UK interest rates turning negative over the course of the next year.
They also suggest there is a 50 per cent chance of an interest rate cut in July, a 65 per cent chance of a cut by August, and an 80 per cent chance of a cut by the end of the year.
Laith Khalaf, Senior Analyst, Hargreaves Lansdown: “The Brexit vote has substantially moved the dial on interest rate expectations, with markets now pricing in a significant chance of rates going negative in the UK.
“This is good news for borrowers, who can now expect lower mortgage rates for even longer, but cash savers will be wondering just how many years they have to wait to get a decent return on their deposits.”
Business Secretary Sajid Javid will tomorrow meet business leaders to calm their fears over Brexit
Speaking today he said: “There are significant challenges ahead, but the economic success of the past few years means we’re better able to withstand the current market turbulence and work towards a better future.
“The UK remains open for business”
Roy Rickhuss, general secretary of Community, has written to Mr Javid calling for urgent talks about the UK steel industry, whose future is now even more uncertain following a Brexit.
In the US, the Dow Jones Industrial Average was trading 1.4 per cent lower on opening.
Joe Rundle, head of trading at ETX Capital, said: “Whatever bounce Osborne delivered, it’s gone now as markets are getting slammed again.
“Today’s US open shattered the peace. Wall Street opened sharply lower, with all 30 Dow stocks in the red.
“Cable has hit fresh 31-year lows, shedding 4 per cent on the day. After Friday’s freefall it doesn’t sound much but these moves are massive in a historical context and it looks like nothing but down for sterling.”
The markets were sent into shock as the pound tumbled in value after Britain voted to leave the European Union on Thursday.
Friday morning saw the pound at a 31-year low after the monumental decision to break away from the EU.
Futures on the FTSE 100 Index slid three per cent. The pound was also down 1.39% against the euro, at 1.2.
Chancellor George Osborne said: “I want to reassure the people the country is ready to confront what the future holds from a position of strength.”
While he admitted public finances will suffer in the wake of the decision to leave the EU, he reassured people “the fundamentals of the British economy are strong, so the British economy is prepared for whatever happens”.
Osborne today ditched his threat to rush through a post-Brexit emergency Budget as money markets suffered a fresh meltdown.
Just two weeks after warning he would have to push through £30 billion tax hikes and spending cuts after an Out vote, the Chancellor said any “readjustment” would now come later this Autumn.
He said it was “sensible” to wait given the Prime Minister’s decision to hand over to a successor in October.
But in his first public appearance since the EU Referendum, the Chancellor risked infuriating Tory Brexit MPs still further by repeating grim warnings about the huge threats facing the British economy.
Defiantly, the Chancellor said: “I don’t resile from any of the concerns I expressed during the campaign. I said we had to fix the roof so that we were prepared for whatever the future held.
In his first speech since the bombshell Brexit verdict, he added: “It is inevitable that Britain’s economy is going to have to adjust to the new situation we find ourselves in.
“It will not be plain sailing in the days ahead.”
Despite the market turmoil, Boris Johnson this morning insisted: “I think it’s very good news that the Chancellor has come and said some reassuring things to the markets.
“It’s clear now Project Fear is over. There’s not going to be an emergency budget. People’s pensions are safe, the pound is stable, the markets are stable, very good news.”
Osborne added the decision to quit the EU caused a range of impacts, all of which “required an adjustment in the economy”.
The Chancellor said contingency plans have been put in place since Thursday’s vote and the treasury is working to stabilise the banks and markets.
It comes as Michael Fuchs, a senior figure in Angela Merkel’s CDU party, warned Britain could retain access to the single market after leaving the EU, “but not for free”.
He said: “You have to see with Norway, with Switzerland, you have to pay a certain fee.
“And the per capita fee of Norway is exactly the same as what Britain is now paying into the EU. So there won’t be any savings.”
Top 5 worst FTSE 250 falls
- Down 11.27% Black Monday aftermath – 20 October, 1987
- Down 9.38% Black Monday aftermath – 26 October, 1987
- Down 8.59% Black Monday – 19 October, 1987
- Down 7.2% Brexit vote aftermath – 24 June, 2016
- Down 6.51% Global financial crisis – 6 October, 2008
The pound briefly increased after Osborne delivered his speech this morning before another dive, as the FTSE 100 fell by a further 0.8% on Friday’s 2% tumble.
Michael Hewson, analyst at CMC Markets, said: “While the Chancellor’s measured tone appears to have helped alleviate concerns about a rudderless UK ship, concerns about the banking sector continue to be a pressure point for investors, as dark threats about the removal of financial pass-porting continue to weigh, and yields continue to fall.
“This has prompted further selling of banking stocks which have continued to remain under pressure with Royal Bank of Scotland and Barclays continuing their Friday slides. Deutsche Bank has once again hit new record lows while Italian banks have also remained under pressure.”
Osborne had been off the radar since the UK’s Brexit vote last week, sparking a Twitter hashtag #WheresGeorge.
He has not confirmed if he will stay on at 11 Downing Street as Chancellor in the long-run.
The Tory MP said: “Leaving the EU was not the outcome I wanted or campaigned for, but now democracy has spoken we must act on that result.
“I fully respect that result. The economy will have to adjust.”
The Chancellor said he will address his position in the Conservative party in the coming days.
He added: “Thank goodness we fixed the roof, while we could.”
Osborne said decisions about how public finances will be adjusted to accommodate the blow to the economy will wait until the OBR assessment in October and the introduction of the new Prime Minister.
He said he has been working with the Bank of England boss and international bodies to put contingency plans in place.
The pro-EU MP’s speech comes after David Cameron announced he would step down as prime minister in the wake of Britain’s decision to leave the European Union.
The fall of the pound comes largely as a result of uncertainty over when Britain will trigger Article 50 to start the divorce process.
Former foreign secretary Alistair Darling today said he is more worried about the economy than during the 2008 financial crisis.
He said: “We have got no government. We have got no opposition. The people who got us into this mess have run away, they have gone to ground and we now have a four month gap before we are likely to get a new prime minister, during which times may be said which will make a bad situation worse.
“It is now a happy situation which is why I’m more worried now than I was in 2008. I accept that the new negotiations can’t start until we have a new prime minister, but we cannot have a four-month period during which nothing happens.”
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