Britain votes to leave the EU

After today’s results our Public Affairs team breaks down on what this historic referendum means for the UK and  the developments from this morning.

Political developments

In the wake of the Prime Minister confirming his resignation the only point that is certain is that there is no timeframe for the invocation of Article 50, the timing of which will be decided by whoever becomes the new Leader of the Conservative Party and Prime Minister.

Boris Johnson, front runner for the leadership, reinforced this message this morning by saying there is “no need for haste” in changes to the EU relationship and that the UK “cannot turn our backs on Europe”. Focus now shifts to the Party’s 1922 Committee which has control over both the timing and process of any leadership election. Whilst Cameron indicated in his resignation speech that he would like this to take place by the Conservative Party Conference at the beginning of October, there may be internal pressure to give Party members more time to fully debate the future of the Party and the candidates’ competing platforms. There remains the real prospect of a General Election following these discussions later on this year, with the new leader seeking a mandate from the British people to deliver the EU renegotiation process.

At this stage no candidates have officially declared their candidacy, though we know key players such as Boris Johnson, Theresa May and Nicky Morgan have all signalled interest. We have yet to hear from the Chancellor George Osborne, and his hopes now look to have faded. Boris Johnson is seen as the leading candidate – his decision to back Vote Leave earlier this year, now the victors, means he could begin to formalise his leadership campaign, and seek to garner parliamentary support – a current weakness of his candidacy.

The Referendum result is as damaging for the Conservative Party as an electoral drubbing. It has significant implications for the future direction of the Party. David Cameron’s modernising agenda of Compassionate Conservatism (that he pointed to in his resignation speech) is likely to be brushed aside by a new leader who will need to appeal to a more socially conservative, right-wing middle England. Other potential candidates could include Liam Fox, Penny Mordaunt and Andrea Leadsom.

There is intense anger in the Parliamentary Labour Party about Jeremy Corbyn’s lack of leadership during the Referendum campaign. This afternoon it has been confirmed that a motion of ‘no confidence’ has been tabled by two MPs – Margaret Hodge and Ann Coffey. However, Momentum, the body which was behind the election of Jeremy Corbyn as leader, has been using the Referendum period to mobilise messaging and support behind the scenes in order to prepare for a coup against Mr Corbyn. It will be ready to mount a vociferous defence of the Leader. Changes to the Party’s grassroots over the past year (with a rise in hard-left activists) mean that, even if a leadership election is triggered, there is no guarantee that the process would not deliver anything other than a similarly hard-left winner.

These developments, of course, also have wider implications on the future of the main political parties. With the Conservative Party likely to be pulled to the right (and the Labour Party pulled to the left), the old-adage that the centre-ground wins is looking shaky today. It opens up a vacuum in the centre ground of British politics.

It is no exaggeration to say that this vote will have significant consequences for the future of the United Kingdom as well. With Sinn Fein in Northern Ireland already indicating their preference for a vote on independence, Nicola Sturgeon has said in the last few minutes that a second independence referendum is now “highly likely” within two years. Scotland voted to ‘Remain’ in the UK to “protect our position in the world”. The First Minister said the vote to leave the EU represented a “material change” in circumstances and that she will be looking to secure Scotland’s place “in the EU and the Single Market”.

Financial updates

The Prime Minister’s clear intention this morning was to deliver a message of stability and confidence to the markets and it seems that this has had the intended impact in stopping the freefall, with a slight bounce back in financial markets throughout the morning.

Earlier on in the day, the London Stock Exchange crashed, with the FTSE 100 dropping nearly 9 per cent. Homebuilders, banks and retailers were most affected; Deutsche Bank AG Chief Executive Officer John Cryan darkly forecast that the impact of the vote will be “negative on all sides.” The instability also shook global markets, with over $700bn wiped out in Asia alone. While the market is expected to stabilise in the medium term, a senior JPMorgan strategist cautioned in the FT that “the best estimate has been that the shock will take at least a percentage point off the UK’s growth rate over the next year.”

To staunch further disruption, the Bank of England issued an emergency statement saying it will “take all necessary steps to meet its responsibilities, for monetary and financial stability”. The Bank’s Governor, Mark Carney, later stressed that the organisation is “well-prepared” to handle the volatility and that it will make available £250bn of additional funds to support liquidity.

The US has yet to officially comment on the vote’s outcome, but undoubtedly a less united Europe creates a much more complicated policy challenge for it. Trade is a particular concern – TTIP negotiations, which were already struggling, will now lose a key advocate of free trade talks in the form of the UK.

On the other hand, Republican presidential hopeful Donald Trump opined that it is a “great thing” that the people of the UK have “taken back their country”.

If you’d like to discuss the future and how our Public Affairs team can help you can contact the team here.