LONDON — George Soros warned of “Black Friday” if the U.K. voted to leave the European Union. The pound is crashing and stocks are tanking. So far, so right. But what happens next and why does it matter?
The result of the U.K. referendum is unprecedented: No country has ever left the 28-nation EU. The vote could have enormous economic and political consequences around Europe, and further afield.
It will take at least two years for a British exit (Brexit) to be negotiated. But the fallout will be immediate, beyond the financial market turmoil.
Economic downturn, more market chaos
The European Union is the U.K.’s biggest trading partner. Now a vote to divorce it could tip the U.K. economy into recession or stagnation.
“The U.K. economy enters a period of huge uncertainty — and weakness as a result … there is a grave danger of further weakness in the weeks ahead,” said Kit Juckes, strategist at Societe Generale.
The U.K. is the world’s fifth biggest economy and any slowdown will hurt anemic global growth. Concern about a broad economic impact was immediately apparent: Oil prices fell 5%.
After the U.K., Europe will feel the pain most acutely. The region is still struggling to recover from its debt crisis.
Brexit could put thousands of jobs at risk. Recession would push up unemployment, and some big companies and banks may also relocate staff to Germany or France to avoid disruption to their EU business.
Many American and global banks and companies have invested heavily in the U.K. as a gateway to Europe.
Companies such as Rolls Royce and JPMorgan warned before Thursday’s vote that leaving the EU would put investments and jobs in the U.K. at risk.
Uncertainty over how U.K.-based firms will trade with Europe in future could be very damaging.
“Business will want to see a detailed plan to support the economy … as confidence, investment, hiring and growth would all be deeply affected by a prolonged period of uncertainty,” the British Chambers of Commerce said.
British Prime Minister David Cameron, who campaigned hard to stay in the EU, said Friday he would resign — a new leader will have to handle the Brexit negotiations.
That means it will be at least three months before formal talks on the future relationship with the EU can begin.
The referendum leaves Britain deeply divided. Scotland voted by a big margin to remain in the EU, and it may seek a second vote on independence. Scottish leader Nicola Sturgeon will make a statement later.
New crisis for Europe
Europe is still struggling with a weak economy, high unemployment and the impact of the biggest refugee crisis since World War II.
Beyond delivering a shock to growth, the vote for Brexit could encourage political parties elsewhere in Europe who want to dump the euro currency or leave the EU. Italy’s Five Star movement and France’s National Front have called for votes on the EU.
“What we had seen as the most significant risk to the political and economic outlook for the U.K., and to a lesser extent, for the European Union as a whole, seems to be materializing,” said Holger Schmieding at Berenberg bank.