The British pound extended losses against the US dollar amid a global market rout as the British government scrambled to contain the economic damage from Thursday’s Brexit vote.
Sterling, already at a 31-year-low against the greenback, fell as much as 3.7 per cent against the dollar and 2.7 per cent against the euro, despite George Osborne, the UK chancellor, breaking a three-day silence yesterday morning in an attempt to reassure markets.
Mr Osborne said he had been in contact with the governor of the Bank of England and other central banks, and that the government had “well thought through contingency plans” in the wake of the vote to leave the EU.
Such comments proved to be of little comfort for UK and European equities, as investors began pricing in significantly lower GDP forecasts in the wake of Thursday’s vote.
British expatriates in the UAE rushed to exploit the sharp fall in sterling by sending cash home as the pound dropped to below Dh5. Traders expect even more remittances to be made before the Eid holiday as people receive their monthly salaries.
“The range of outcomes for the UK economy is very wide but clearly skewed to the downside at this point,” said Ned Rumpeltin, the European head of currency strategy at Toronto Dominion Bank in London. “It is very hard to find a good scenario if things continue to progress toward a EU withdrawal.”
Stocks plunged in London, with circuit breakers briefly suspending trading in stocks including Barclays, RBS and easyJet after falls of more than 10 per cent. The low-cost airline, which warned of the impact of Brexit on its profits, shed nearly a quarter, wiping more than £2 billion (Dh9.67bn) off the company’s value.
Oil also resumed its decline, below US$47 per barrel.
Gold rose and yields on 10-year British government bonds dropped below 1 per cent for the first time ever, as investors sought safe havens, with European stocks also taking a battering.
“We think a recession in the UK will ensue, which cuts our calendar year 2017 GDP growth forecast to 0.2 per cent from 2.3 per cent, even with the Bank of England stimulating,” said Bank of America Merrill Lynch in a research note.
“A combination of the direct effect of lower UK demand and higher uncertainty in Europe in general could shave between half a point and a full point off GDP growth [in the euro area] within the coming year.”
The FTSE100 was down about 2.2 per cent just before the close of trading, with the Euro Stoxx 50 off about 2.7 per cent. The S&P500, meanwhile, opened 1.6 per cent lower.
Asian and Middle Eastern shares largely escaped the sell-off in Europe and the US, with Japan’s Nikkei closing up 2.3 per cent.
UAE equities also posted modest gains after Sunday’s sell offs.
The Dubai Financial Market General Index rose by as much as 1.3 per cent in early trading before paring gains to end the day up 0.8 per cent at 3,285.76.
The Abu Dhabi Securities Exchange General Index ended the day up 0.4 per cent while Saudi Arabia’s Tadawul All Share Index fell by 0.2 per cent.
jeverington@thenational.ae
* With reporting by Lucy Barnard and agencies
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