UK's vote to leave EU sparks uncertainty


  • The UK vote to leave the European Union (EU) kicks off a long period of political, economic and market uncertainty for the UK and EU 
  • We see sell-offs in shares and other global risk assets creating buying opportunities
  • The vote does not change BlackRock’s management of client assets in Europe. We do not foresee any disruption to how we manage portfolios



The United Kingdom’s momentous decision to leave the European Union (EU) brings long-lasting political and economic consequences. We expect European leaders to focus on fending off domestic populist movements emboldened by the British exit and on preventing the entire EU edifice from falling apart.

David Cameron has announced he will resign as UK prime minister by October, setting the stage for a Conservative leadership election this summer. This race will likely be dominated by Leave supporters, increasing uncertainty and the risk of emotive exit negotiations. We see a Scottish independence vote as back on the table.

A complicated exit process

We expect the UK’s exit process to be a messy one, including the unpacking of UK and EU laws, striking trade compromises with a spurned EU and around the globe. We expect potential losses in services exports and investment flows to overwhelm any benefits of lower payments to EU.

We think the vote will lead to declines in global shares and other risk assets. Yet indiscriminate selling could spark opportunities.

What a Brexit means for global markets

We see a weaker euro over time as well as pressure on European shares, credit and peripheral bonds amid likely job losses and lower growth across the continent. We expect the resulting stress on government budgets to be contained. High-quality government bonds remain in demand in a low-rate world.

The Bank of England’s first priority will be to provide ample liquidity to avoid any funding stresses, in our view. The magnitude and volatility of the British pound’s fall will likely dictate further responses. The central bank may cut its 0.5% policy rate to zero soon, and see it returning to quantitative easing instead of pushing rates into negative territory. We expect credit rating agencies to quickly adopt negative outlooks for UK government bonds, with downgrades to follow.

We think the vote will lead to declines in global shares and other risk assets. Yet indiscriminate selling could spark opportunities. U.S. and Asia markets are only marginally affected by the UK’s exit from the EU, and are supported by a mix of easy monetary policy and economic growth. In the UK, we expect the large-cap FTSE 100 Index to outperform the more domestically focused FTSE 250 Index. A UK currency drop benefits large companies with overseas earnings; domestic sectors such as homebuilders, retail and financials look vulnerable.