Yesterday was an unprecedented day – a day when the UK voted to leave the EU with 48.1 per cent of votes to remain and 51.9 per cent to leave. The UK Prime Minister, David Cameron, resigned.

When the results came out, the FTSE 100 fell by 8.7 per cent and the GBP fell to a 31-year low against the USD to 1.3227 and the Euro/GBP hit 0.8318.

With the British public having voted to leave the EU, there will inevitably be a period of uncertainty as Britain transitions from its existing relationship inside the EU to a new relationship as a partner working with the EU.

Broadly speaking, there is likely to be a two-phased market reaction to Brexit – the short-term impact and the longer-term adjustment period. This is shown below:

Phase 1 – 0-3 months:

1. Expected impact on markets: global run on GBP while current account risks flare.

2. Subsequent estimated FX shift: -15 to -20% GDP depreciation.

3. Anticipated FX target ranges:

GBP/USD $1.25-$1.32

GBP/EUR €1.14-€1.20

EUR/USD $1.08-$1.12

4. Considerations that will impact these forecasts: Bank of England’s coordinated international intervention.

Phase 2 – medium-term assessment:

1. Expected impact on markets: UK/EU re-negotiation and potential Scottish referendum.

2. Subsequent estimated FX shift: GBP recovery if political and economic picture improves.

3. Anticipated FX target ranges unknown – depending onrenegotiations.

4. Considerations that will impact these forecasts: Emergency EU renegotiations and any further referendums.