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The FTSE 100 index tumbled in the first few minutes of trading, wiping more than Â£100 billion (Dh544.13bn) off the value of the UK’s top companies.
Azad Zangana, the senior European economist at the asset management firm Schroders: “We’re not forecasting a recession at this stage, but we would say that the risk of recession in the UK is now running at around 35, 40 per cent – very elevated indeed.
“This period of uncertainty now, as these negotiations take place, will probably lead to a significant delay, postponement and even cancellation of many investment projects, both funded domestically and through foreign direct investment. We’d already seen evidence of this starting from about six months ago. We suspect this will now continue.
“The UK benefits disproportionately from foreign direct investment, so it will be a more significant shock than most people anticipate.
“Over time, as the pull off in investment starts to feed through into a slowdown in jobs growth, maybe even job losses, the household sector will also start to feel the pain.”
The fall in the value of sterling “could continue for some time”, leading to higher import prices and higher inflation, Mr Zangana said.
He warned of “potential contagion spreading through a number of the markets” in Europe, with the possibility of other referendum votes on EU membership.
Rory Bateman, the head of European equities at Schroders: “Today’s reaction is not going to be representative. There is a significant amount of panic in the market [and] significant uncertainty overall. And today’s reaction will be a kneejerk reaction,” he said.
“The market hates uncertainty as we know… We need some political certainty in order to stabilise markets.
“Domestically focused businesses are likely to underperform relative to the international players,” he said. “78 per cent of FTSE 100 revenues are derived overseas, and in actual fact a lot of those businesses will be significant beneficiaries of sterling weakness.”