Global markets and Sterling have recovered some of their losses upon the UK decision to leave the EU. In some quarters, this has been taken as a sign that things will not be as bad as people have feared, but they are wrong.
The Brexit vote is a little like a Tsunami in that the initial event, an earthquake, has quickly passed and did only a relatively modest bit of damage (unless you are a Brit, holidaying abroad this summer and yet to get your foreign currency, of course). However, that is just the lull before the storm. In a Tsunami, the sea rushes away from the shore before the wave crashes back in causing devastation, usually a short time later. In this analogy, the time scale is much longer. The initial event is the vote, but until the UK government invokes Article 50 which tells the EU of its intention to leave, nothing has changed, Once the declaration is made, a two year countdown is started with which Britain and her EU partners disentangle themselves and try to chart a future relationship between them to include the basis of the UK’s access (if any) to the single market. Once the two years is up, the sea rushes back to British shores and markets and Sterling will be battered anew.
Given that nothing has happened yet, and there is still time to avoid Brexit, if only the political will can be found, it is unsurprising that markets are rallying – there are some cheap stocks to be bought which will probably be good value for, say, the next fifteen months. However, until the complexion of post EU Britain can be seen, and crucially if it can retain access to the single market, inward investment will dry up and businesses thinking of setting up in the UK will seriously look at alternative solutions (e.g. Ireland).
The British people made a decision in ignorance of the consequences of it because the Leave campaign could not put forward any form of accurate picture of a post Brexit Britain. Hopefully, they will be given a chance to confirm their intentions once that picture emerges – failure to do so would plunge the UK into a home-grown economic disaster.