The vote is over, the re­sults are known, but the full im­pli­ca­tions are yet to be worked out. The ef­fects will be felt in the UK, the EU and the wider glob­al econ­o­my.

Al­ready fi­nan­cial mar­kets have been roiled by the de­ci­sion. Cur­ren­cies have fluc­tu­at­ed wide­ly, the com­modi­ties mar­kets have been im­pact­ed, with West Texas In­ter­me­di­ate (WTI) falling by US$3 in the first 24 hours fol­low­ing the vote, and the eq­ui­ty mar­kets be­ing pum­meled, los­ing over US$2 tril­lion in val­ue last Fri­day.

Fi­nan­cial stocks were one of the biggest losers, drop­ping over US$400 bil­lion in val­ue as a re­sult of con­cerns re­gard­ing the im­pact on in­ter­est rates, liq­uid­i­ty, as­set val­ues and the prospects for eco­nom­ic growth. The mag­ni­tude of these loss­es would have been re­flec­tive of in­vestors tak­ing pre-emp­tive ac­tion and the mar­kets may have over­shot with pos­i­tive cor­rec­tions oc­cur­ring in the com­ing weeks. Nonethe­less there will be longer term ef­fects com­ing out of this de­ci­sion by the British that we need to ad­dress.

Let us look at the ef­fects in sum­ma­ry:

The UK

The great­est im­pact will be felt by the UK which is now at risk of a ma­jor po­lit­i­cal split with con­cerns be­ing raised that Eng­land and Wales could pos­si­bly go sep­a­rate ways from Scot­land and Ire­land. It is very like­ly that the UK econ­o­my can slip back in­to re­ces­sion and Lon­don's place as a glob­al fi­nan­cial cen­tre will be weak­ened.

Ster­ling's val­ue vis-�-vis oth­er cur­ren­cies has been im­pact­ed neg­a­tive­ly and all com­pa­nies op­er­at­ing in Britain are eval­u­at­ing the im­pact on their bal­ance sheets and prof­it and loss state­ments as a re­sult. One of the ef­fects of the fall in the val­ue of the pound will be an in­crease in in­fla­tion as im­ports be­come more ex­pen­sive. As a con­se­quence, in­ter­est rates can pos­si­bly in­crease if the Bank of Eng­land be­lieves that it needs to in­ter­vene to pre­vent fur­ther de­pre­ci­a­tion in the val­ue of ster­ling. There will be a re­luc­tance to do so giv­en the soft­ness of the UK econ­o­my and the po­ten­tial damp­en­ing ef­fect on new in­vest­ments that the Brex­it de­ci­sion can cause.

But it's not all bad news. Some of the pos­i­tive ef­fects of the fall in the val­ue of ster­ling will be to make UK ex­ports more com­pet­i­tive and com­pa­nies with sig­nif­i­cant ex­ports and over­seas sub­sidiaries will see their prof­its in­crease. The vote can al­so have the ef­fect of low­er­ing prop­er­ty prices in Lon­don (one of the high­est in the world) as ef­fec­tive de­mand will fall if the banks re­lo­cate.

The like­ly ef­fects will, how­ev­er, take some time to be worked out and we need to con­tin­ue to mon­i­tor and eval­u­ate the im­pact on us of the de­ci­sions tak­en by the UK as they be­gin the process of dis­en­gag­ing from the EU.

The World

The first area to feel the ef­fect of course will be the Eu­ro­pean Union. There are pres­sures with­in var­i­ous coun­tries to move away from the Union. This is like­ly to be­come ex­ac­er­bat­ed. Italy, Spain, Por­tu­gal and France come im­me­di­ate­ly to mind. Some com­men­ta­tors be­lieve that the ef­fect can be an un­wind­ing of the Eu­ro­pean ex­per­i­ment but that seems, at this stage, to be an over­state­ment. I am con­scious how­ev­er, that we have got­ten the Brex­it out­come and the Trump phe­nom­e­na on the oth­er side of the At­lantic wrong, and so we need to mon­i­tor this close­ly.

Al­ready we are see­ing a flight of mon­ey from emerg­ing mar­kets and this is like­ly to con­tin­ue un­til mar­kets sta­bilise.

The pos­si­bil­i­ty is that the ef­fect can be a slow­ing of in­vest­ments in the short-term and greater risk aver­sion gen­er­al­ly that can tip a tee­ter­ing glob­al econ­o­my in­to re­ces­sion. Al­ready there are sug­ges­tions that the US Fed­er­al Re­serve may hold on any in­ter­est rate in­creas­es un­til 2017 or 2018.

There is no un­der­stand­ing of the type of trade con­fig­u­ra­tion that can emerge from Britain's re­la­tion­ship with the EU and the like­ly out­come of elec­toral de­ci­sions in the EU in the com­ing months. The out­come of these mat­ters can af­fect trade flows neg­a­tive­ly and lead to a slow­down in the glob­al econ­o­my.

All the in­di­ca­tions point to greater down­side risks gen­er­al­ly and we need to be mind­ful of the ef­fects of this on stan­dards of liv­ing every­where.

The world is show­ing a re­sent­ment to the poli­cies of glob­al­i­sa­tion which have been cham­pi­oned by the mul­ti­lat­er­al in­sti­tu­tions and im­ple­ment­ed every­where over the last few decades. While these poli­cies have led to eco­nom­ic growth, it has al­so ex­ac­er­bat­ed di­vi­sions. The ten­sions that have been cre­at­ed by these poli­cies have been ac­cen­tu­at­ed by the changes in in­for­ma­tion and com­mu­ni­ca­tion tech­nol­o­gy that have tak­en place over the last 30 years and which have changed the world.

The po­lit­i­cal out­come from these un­der­ly­ing so­cio eco­nom­ic phe­nom­e­na has been the emer­gence of Trump in the US and now Brex­it in Britain. It ex­ists al­so in oth­er coun­tries and we can like­ly see its more as­sertive emer­gence in oth­er EU coun­tries in the next 24 months. De­vel­op­ing coun­tries will al­so be­gin to demon­strate sim­i­lar ten­sions and we can see more wide­spread changes. The ef­fect of all this can make the push back on glob­al­i­sa­tion a world­wide phe­nom­e­na that will have far reach­ing ef­fects on the world for decades to come.

Lar­ry Howai

For­mer fi­nance min­is­ter