Following the Leave result, we would no longer anticipate a post-vote bounce back in activity (primarily investment) delayed in the run-up to the referendum. UK gross domestic product (GDP) could be lower and unemployment higher than would have otherwise been the case, reflecting the medium-term impacts on markets, confidence, spending and investment.

We would normally expect inflation to slow in a weaker-growth environment, but the currency impact of the vote to Leave is likely to provide a boost to inflation.

As Governor Carney pointed out in the run-up to the referendum, this presents the Bank of England with a difficult trade-off: lower growth (which would normally point to additional policy stimulus) and higher inflation (which would conventionally trigger tighter policy). Hence the emphasis on liquidity measures in the short-term and Mr. Carney’s pre-vote statement that a vote to Leave could result in higher, lower or unchanged interest rates. That said, at the very least we would anticipate that interest-rate rises could be pushed well back from our pre-vote timetable (2017 Q2) 2and further rate cuts and/or quantitative easing remain on the table.

The macro impacts could both last into the long term and extend beyond the UK’s shores.

As immediate market moves have indicated, the potential macro impacts of the vote extend well beyond the UK. Other European countries are the most obvious candidates to take a hit, both as a result of their trade linkages with the UK and reflecting the fact that they are the other participants in the European project. The European Central Bank is therefore likely to respond. Indeed it has already done so with reassuring words. However, further policy action may be taken, if required.

There is also a direct read-through from the Leave campaign’s success to political risks from Eurosceptic parties in other European countries – including the key member states of Germany and France.

Market impacts

This result of the referendum had not been anticipated by markets or the pollsters. At the time of writing, European and Asian equity markets are down between three and 10% – but have bounced off their earlier lows. Developed bond markets, including the UK gilt3  market, are stronger, while European peripheral bond markets are weaker. Sterling is weaker against all major currencies but has also bounced off earlier lows.

All these asset price changes should be seen in the context of the significant moves in the run-up to the referendum – strength in equities and sterling and weakness in developed government bonds.

The statement from Governor Carney has given some comfort to investors. He has reminded market participants of the robustness of the financial system and the ability of the Bank of England to provide liquidity to markets. At the time of writing, markets – while having moved significantly – appear orderly and with adequate liquidity.

The macro-economic and political impacts of the referendum result, noted above, are likely to have significant ramifications for markets both in the UK and beyond over the coming months and years. As you would expect, we will monitor them and their implications carefully.