George Osborne seeks to calm markets amid Brexit turmoil

George Osborne Concerned

George Osborne has sought to reassure financial markets by insisting Britain’s economy is in a strong position to adjust to life outside the European Union.

Breaking his silence in a statement at the Treasury, the chancellor said he “did not resile” from the dire predictions made during the referendum campaign that Brexit could plunge Britain into recession and cost hundreds of thousands of jobs.

“It is inevitable, after Thursday’s vote, that Britain’s economy is going to have to adjust to the new situation we find ourselves in,” he said.

But in a phrase reminiscent of Gordon Brown’s language in the early days of the 2008 crisis, he repeatedly insisted that the “fundamentals” of the British economy were strong.

“I said we had to fix the roof so that we were prepared for whatever the future held. Thank goodness we did. As a result, our economy is about as strong as it could be to confront the challenge our country now faces.”

Osborne repeated David Cameron’s insistence that article 50 – the formal process for withdrawing from the EU – did not need to be triggered until the autumn, when a new prime minister can be in place.

Cameron resigned on Friday morning, after the British public made the historic decision to exit the EU, and there has been speculation at Westminster about Osborne’s future role.

The chancellor stressed that Britain’s relationship with the EU would remain unchanged for the time being – and ditched the idea, launched alongside his predecessor Alistair Darling during the campaign – that an emergency budget would be necessary within weeks, as Brexit slams the brakes on the economy.

Instead, he said action could wait until the autumn, when the independent Office for Budget Responsibility could produce new forecasts for the size of the economy and the health of the public finances.

Osborne said: “It is already evident that as a result of Thursday’s decision some firms are continuing to pause their decisions to invest, or to hire people. As I said before the referendum, this will have an impact on the economy and the public finances – and there will need to be action to address that.

“Given the delay in triggering article 50 and the prime minister’s decision to hand over to a successor, it is sensible that decisions on what that action should consist of should wait for the OBR to assess the economy in the autumn, and for the new prime minister to be in place.”

The chancellor was hoping to calm financial markets, which reacted to Friday’s referendum result by dumping sterling and selling shares in London.

He said he had spoken to finance ministers and central bankers over the weekend; and that the Treasury and the Bank of England had worked on contingency plans with each individual financial institution in the run-up to the vote. Osborne stressed that banks’ capital levels were far higher than before the 2008 financial crisis.

“We are determined that unlike eight years ago, Britain’s financial system will help our country deal with any shocks and dampen them – not contribute to those shocks or make them worse,” he said.

The Treasury’s forecasts for post-Brexit Britain included predictions that the economy could slip into recession, making every household in the country £4,300 a year worse off.

Osborne’s hopes of one day leading his country were thought to have died with the loss of the referendum; but it is still unclear whether he plans to run in the Conservative leadership contest. He could also throw his weight behind one of the contenders in exchange for a senior role in a new government.

He told reporters at the Treasury that he “intends to play an active part,” in the debate about Britain’s future relationship with the EU, “for I want this great trading nation of ours to put in place the strongest possible economic links with our European neighbours.”

He added: There will be questions about the future of the Conservative party, and I will address my role within that in the coming days.”

The pound recovered some of its early losses following Osborne’s statement but was still down against the US dollar. It was trading at about $1.345 on Monday morning, a fall of 1.7%. It had fallen to $1.339 before the chancellor spoke, down from $1.36 on Friday night.

Before Osborne appeared, British businesses warned that Brexit would trigger investment cuts, hiring freezes and redundancies as the consequences of leaving the European Union threaten to destabilise markets further this week.

The survey by the Institute of Directors (IoD), which found that the majority of businesses believed Brexit was bad for them, came amid fears that investors would wipe billions of pounds more off share values on Monday, and signs that the pound, which hit a 30-year low on Friday, was coming under further pressure from trading in Asia. Sterling was down more than 1% as the Asian markets opened late on Sunday.

The IoD said a quarter of its members polled in a survey were putting hiring plans on hold, while 5% said they were set to make workers redundant. Nearly two-thirds of those polled said the outcome of the referendum was negative for their business.

The FTSE 100 index of leading shares is expected to fall by 2.8%, or about 180 points, when the market opens on Monday.

In other developments, Boris Johnson broke cover in a bid to start healing Tory wounds over the bitter referendum battle.

Johnson, the frontrunner to replace Cameron as prime minister, used an article in the Daily Telegraph to insist that Britain would not turn its back on Europe and would be able to introduce a points-based immigration system while maintaining access to the single market.

Cameron was due to chair an emergency cabinet meeting, while the US secretary of state, John Kerry, was visiting London and Brussels for talks on the fallout from the vote.

The German chancellor, Angela Merkel, has invited the EU council president, Donald Tusk, the French president, François Hollande, and the Italian prime minister, Matteo Renzi, to Berlin on Monday. There will be an EU council meeting in Brussels on Tuesday and Wednesday. Cameron will appear on Tuesday but will not attend Wednesday’s session.

Powered by Guardian.co.ukThis article was written by Heather Stewart and Jamie Grierson, for theguardian.com on Monday 27th June 2016 08.36 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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