So the UK has voted to leave the European Union.
There will be numerous commentaries on the consequences of this decision and an inevitable over reaction in the short term driven by market speculators. This has probably not been helped by the fears expressed by the leaders of the remain campaign and many economists should the UK vote to leave the Union.
But lets for a moment pause and consider what the UK has actually voted for. It has voted to take back control from “ever closer Union” which the more influential forces in Brussels have been pushing for years, with the Euro project being its flagship. This view is shared across the populous of many European countries. The project started as a free trade project where the benefits of collaboration were obvious, clear to see and widely supported.
The UK as a whole, has rejected the federalisation model of a United States of Europe. It has not rejected working closely with our European friends on trade deals. It has just decided to treat Europe the same as every other country in the world that wishes to engage in trade for the mutual benefit of all. The UK has not rejected sensible immigration from around the world, the encouragement of free trade between countries and working together to achieve common goals. The UK has just rejected the federalisation model, preferring instead to govern itself and be more fleet of foot in negotiating trade deals with our more natural free trade ideals compared to some elements across the Channel.
So whilst in the short term, there will be inevitable uncertainty and a cautious approach will be taken by companies in their decision making, in the long term it will become evident that there is continued mutual advantage for companies and institutions throughout Europe to work with their counterparts in the UK on a sensible forward path for mutual advantage.
So the medium to long term outlook should be fine, indeed it will almost certainly improve from the uncertain situation that has existed during the first half of 2016.
We have a difficult short term period to negotiate trade agreements and for the markets to return to a balanced equilibrium, but the basic underlying principles of our economy have not changed.
The following has been put out by the Bank Of England this morning:
Bank of England Governor Mark Carney’s statement following EU referendum result – 24 June 2016
The people of the United Kingdom have voted to leave the European Union.
Inevitably, there will be a period of uncertainty and adjustment following this result.
There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold.
And it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world.
Some market and economic volatility can be expected as this process unfolds.
But we are well prepared for this. The Treasury and the Bank of England have engaged in extensive contingency planning and the Chancellor and I have been in close contact, including through the night and this morning.
The Bank will not hesitate to take additional measures as required as markets adjust and the UK economy moves forward.
These adjustments will be supported by a resilient UK financial system – one that the Bank of England has consistently strengthened over the last seven years.
The capital requirements of our largest banks are now ten times higher than before the crisis.
The Bank of England has stress tested them against scenarios more severe than the country currently faces.
As a result of these actions, UK banks have raised over £130bn of capital, and now have more than £600bn of high quality liquid assets.
Why does this matter?
This substantial capital and huge liquidity gives banks the flexibility they need to continue to lend to UK businesses and households, even during challenging times.
Moreover, as a backstop, and to support the functioning of markets, the Bank of England stands ready to provide more than £250bn of additional funds through its normal facilities.
The Bank of England is also able to provide substantial liquidity in foreign currency, if required.
We expect institutions to draw on this funding if and when appropriate, just as we expect them to draw on their own resources as needed in order to provide credit, to support markets and to supply other financial services to the real economy.
In the coming weeks, the Bank will assess economic conditions and will consider any additional policy responses.
A few months ago, the Bank judged that the risks around the referendum were the most significant, near-term domestic risks to financial stability.
To mitigate them, the Bank of England has put in place extensive contingency plans.
These begin with ensuring that the core of our financial system is well-capitalised, liquid and strong.
This resilience is backed up by the Bank of England’s liquidity facilities in sterling and foreign currencies.
All these resources will support orderly market functioning in the face of any short-term volatility.
The Bank will continue to consult and cooperate with all relevant domestic and international authorities to ensure that the UK financial system can absorb any stresses and can concentrate on serving the real economy.
That economy will adjust to new trading relationships that will be put in place over time.
It is these public and private decisions that will determine the UK’s long-term economic prospects.
The best contribution of the Bank of England to this process is to continue to pursue relentlessly our responsibilities for monetary and financial stability.
These are unchanged.