UK financial markets remain volatile in the wake of the Brexit vote, with sterling plunging to a 31-year low against the dollar after Standard & Poor and Fitch downgraded the UK’s credit rating yesterday. S&P downgraded the UK's rating by two notches, from AAA to AA, with a negative outlook and Fitch also downgraded the UK, from AA+ to AA with a negative outlook.
"The UK vote to leave the European Union in the referendum on 23 June will have a negative impact on the UK economy, public finances and political continuity," Fitch said in a statement. The agency added: "The negative outlook reflects the risk to economic prospects, fiscal and external performance, and the role of sterling as a reserve currency, as well as risks to the constitutional and economic integrity of the UK if there is another referendum on Scottish independence."
Sky News reported on Monday night that Moody’s has signalled to a number of the UK’s largest banks that it plans to revise down the outlook for their credit ratings to negative from positive or stable.
Earlier on in the session Chancellor George Osborne gave a statement before the financial markets opened, his first since the referendum result, the chancellor said the UK was ready to face the future "from a position of strength". He also indicated there would be no immediate emergency Budget. He continued to discuss there would still need to be an "adjustment" in the UK economy, but added it was "perfectly sensible to wait for a new prime minister" before taking any such action.
Once the markets had opened the upheaval continued. On the stock markets, the FTSE 100 was down 2.1% in early afternoon. Shares in financial firms were the most affected, with Barclays down 18% and Royal Bank of Scotland plummeting 22%.The dramatic volatility caused trading in both firms to be briefly suspended in early trade. Property shares were also badly hit, prompting a trading halt.
Cameron addressed parliament as the race to replace him nears, with Johnson and Home Secretary Theresa May among likely contenders. The Conservative Party today accelerated the timetable to elect a new leader, bringing the date forward by almost a month to Sept 2nd.
German Chancellor Angela Merkel and fellow European leaders kicked off a series of crisis talks, she urged Britain to get on with it. “An extended waiting game” was bad for both sides, she said.
Europe’s leaders must decide how to treat Britain in the divorce talks and what steps to take to reinforce confidence in a bloc set to shrink with the departure of its second-biggest economy. Failure to deliver a strategy could prompt markets to force their hand -- as they did after the collapse of Lehman Brothers Holdings Inc. and Greece’s debacle.
Cameron told Parliament on Monday that while Brexit won’t be “plain sailing” as the country adjusts, “Britain is ready to confront what the future holds for us from a position of strength.” Merkel, speaking to reporters in Berlin Monday, said the U.K. has to file official notification of its intention to leave before negotiations can start on its future relationship with what would be a 27-member EU. She said, though, it may take some time for the government to invoke Article 50 that triggers the countdown to an EU exit.
USD - 13:30 - GDP expected to increase to 1%
USD - 15:00 - Consumer confidence is forecast to increase
EUR - All Day - EU economic summit