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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (now) and Nick Fletcher

Britain credit rating downgraded as markets suffer more Brexit losses - as it happened

Chancellor George Osborne seeks to calm Brexit fears

Closing mini-summary

OK, time to wrap up for tonight. A quick reminder of the key points.

Britain has lost its final gold-plated AAA rating, following Standard & Poor’s decision to downgrade the country by two notches, to AA.

S&P warned that the Brexit vote will lead to “less predictable, stable, and effective policy framework in the UK” and hurt growth.

Fitch, another major credit rating, has also downgraded Britain to AA tonight, from AA+.

The moves came after another day of losses on the stock markets. The FTSE 100 index lost another 156 points, while medium-sized companies on the FTSE 250 fell by 6%.

Banking shares suffered most, amid fears of a UK recession, with Royal Bank of Scotland plunging by 25% at one point.

The pound hit a new 31-year low against the US dollar, despite chancellor George Osborne trying to calm the market panic over the EU referendum vote.

We’ll be back tomorrow with more live coverage of the market reaction to the ongoing Brexit crisis. Goodnight!

Surely we’ve suffered enough...

Tuesday’s Guardian front page focuses on the race to replace David Cameron as prime minister:

Some more front pages to digest before the morning:

The gloom gripping the City won’t have been helped by tonight’s unmitigated shambles in the football:

Howard Archer of IHS Global Insight sums it up:

The credit rating of the UK economy may have been downgraded by 2 notches by Standard & poor’s this evening; the football team deserves to be cut to junk status.

(PS: Well done Iceland)

Trader Michael Urkonis works on the floor of the New York Stock Exchange today.
Trader Michael Urkonis works on the floor of the New York Stock Exchange today. Photograph: Richard Drew/AP

From New York, my colleague Sam Thielman reports on another bad day on Wall Street:

US stock markets were rocked again on Monday by the aftershocks of the UK’s referendum decision to quit the European Union.

Since the results became known on Thursday, the major US markets have suffered their biggest two-day fall in 10 months. Monday’s dips came as the pound collapsed to its lowest point since 1985 and the UK lost its triple-A credit rating.

The Dow Jones Industrial Average finished the day down 260 points, or 1.5%, the S&P 500 dropped 1.8%, and the technology-heavy Nasdaq ended the day 2.5% down as the sell-off sparked by the Brexit vote in the UK continued to reverberate through the American market....

This is worth repeating...

Why Fitch downgraded the UK

Fitch says it has downgraded Britain’s credit rating from AA+ to AA because the decision to leave the EU will have “a negative impact on the UK economy, public finances and political continuity.”

The rating agency warns that Britain faces an “abrupt slowdown in short-term GDP growth”, as businesses defer investment while tehy wonder how the Brexit vote will affect them.

The agency says:

Fitch has revised down its forecast for real GDP growth to 1.6% in 2016 (from 1.9%), 0.9% in 2017 and 0.9% in 2018 (both from 2.0% respectively), leaving the level of real GDP a cumulative 2.3% lower in 2018 than in its prior ‘Remain’ base case.

Fitch also fears that medium-term growth will also likely be weaker, as Britain will find it harder to export to the EU. Lower immigration, and a fall in investment from overseas, will also hurt the economy, as could a weaker pound.

Fitch adds that Britain’s future trade relationship with the EU is crucial:

Statements by UK and EU leaders will provide some guidance on the UK government’s policy objectives, the likelihood of achieving them and the timeframe for negotiation. However, Prime Minister David Cameron has indicated that negotiations with the EU will not begin in earnest until 4Q16, and the final position may well not be known for several years.

And Fitch also fears that Britain’s budget deficit will be higher than previously expected, as weaker economic growth means lower tax revenues.

This implies that the general government debt ratio will continue rising over the forecast horizon, reaching 91% of GDP in 2017, compared with the debt ratio stabilising previously.

And then there’s the political crisis raging in Westminster; Fitch says this is also bad for Britain’s credit worthiness:

The outcome of the referendum has precipitated political upheaval, including the announced resignation of the Prime Minister, contributing to heightened uncertainty over government economic policies and diminished scope for policy implementation at the current conjuncture.

And there’s more.....

Furthermore, the fact that a majority of voters in Scotland opted for ‘Remain’ makes a second referendum on Scottish independence more probable in the short to medium term. The Scottish First Minister Nicola Sturgeon has indicated that a second referendum on Scottish independence is “highly likely”. A vote for independence would be negative for the UK’s rating, as it would lead to a rise in the ratio of government debt/GDP, increase the size of the UK’s external balance sheet and potentially generate uncertainty in the banking system, for example in the event of uncertainty over Scotland’s currency arrangement.

There’s more here (if you can face it):

FITCH DOWNGRADES UK

Britain’s credit rating has just suffered a double blow, with the news that Fitch has also downgraded it to AA.

More details to follow....

Wall Street suffers biggest two-day fall in 10 months

Take a deep breath, folks. Another day of market turmoil is over.

Wall Street has closed, with the Dow Jones industrial average shedding 260 points, or 1.5%.

Credit card firm American Express was the biggest faller on the Dow, down around 3.9%.

Reuters reports that Wall Street has suffered its biggest two-day fall in 10 months, since the worries about China’s slowing economy.

Updated

Britain’s Brexit crisis is going to dominate tomorrow’s papers.

The Financial Times’ front page has just landed, focusing on the heavy losses on the stock markets and the pound’s drop to a 31-year low.

The FT’s economics editor, Chris Giles, says S&P’s downgrade is a cause for serious concern:

Shares are still falling in New York, with 30 minutes trading today.

Financial stocks are among the big fallers, as in Europe today.

It’s been a really dramatic day in the financial world; here’s our updated news story:

The scale of S&P’s downgrade tonight is unprecedented, says Reuters’ Jamie McGeever, showing the full impact of Brexit.

Back in 2012, the LabourList website gathered together George Osborne’s various warnings about the need to keep the AAA rating.

For example, in 2009, he declared:

“I have argued it with my opponents in difficult economic times, when I warned them last autumn that the cupboard was bare and the discretionary borrowing had to stop – and now Britain faces the humiliating possibility of losing its international credit rating.

Here’s the full list: Some things George Osborne has said about the AAA credit rating

All good clean fun. But in the chancellor’s defense, he did warn the public not to vote for Brexit....

S&P held back the downgrade until the London stock market had closed, so the City hasn’t had chance to react yet.

But over in New York, shares are falling deeper into the red on Wall Street.

The Dow Jones industrial average has now shed 306 points, a fall of 1.75% today, on top of the 611 points shed during Friday’s tumble.

Former Liberal Democrat leader Paddy Ashdown fears that Britain will eventually have to pay more to borrow, due to S&P’s downgrade:

A lower credit rating would only affect the cost of new debt, of course, not the existing borrowing.

Updated

S&P downgrades Britain - the key points

British Chancellor of the Exchequer George Osborne, speaks during a news conference

Britain lost her top-notch credit rating almost exactly 12 hours after chancellor George Osborne claimed that Britain’s economy was in decent shape to face the uncertainty caused by the Brexit vote.

Here are the key reasons why S&P took this historic move:

  • In the nationwide referendum on the U.K.’s membership of the European Union (EU), the majority of the electorate voted to leave the EU. In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating
  • The downgrade also reflects the risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements
  • The vote for “remain” in Scotland and Northern Ireland also creates wider constitutional issues for the country as a whole.
  • Consequently, we are lowering our long-term sovereign credit ratings on the U.K. by two notches to ‘AA’ from ‘AAA’.
  • The negative outlook reflects the risk to economic prospects, fiscal and external performance, and the role of sterling as a reserve currency, as well as risks to the constitutional and economic integrity of the U.K. if there is another referendum on Scottish independence.

Corporate governance expert Lucy Marcus points out that some UK companies could now face higher borrowing costs, following S&P’s move.

That’s because a company can’t have a higher credit rating than its own country [because sovereign states, and their central banks, are the lenders of last resort, in times of crisis]

S&P’s two-notch downgrade comes hot on the heels of Moody’s, which downgraded the UK’s outlook to negative on Friday night.

Reuters’ Luke Baker points out that the agencies are moving with unusual speed:

Updated

Losing the Triple-A credit rating might not have any immediate impact on Britain’s ability to borrow.

That’s because worried investors have been keen to buy UK government bonds since the Brexit crisis erupted, driving borrowing costs down to record lows.

But it’s a humiliating moment for the government, which put ‘repairing the public finances’ at the heart of its strategy (not always successfully).

Moody’s and Fitch both downgraded the UK in 2013. S&P maintained the AAA through the eurozone debt crisis, but has now lost the faith.

S&P: UK faces constitutional issues

S&P is also concerned that the future of the United Kingdom itself is at risk.

It says that the majority votes to remain within the EU from Scotland and Northern Ireland create “wider constitutional issues for the country as a whole.”

S&P really hasn’t held back -- this is a TWO-NOTCH downgrade, from AAA to AA, completely bypassing the AA+ rating.

Britain loses AAA credit rating

NEWSFLASH: Britain has just lost its last triple-A credit rating.

Standard & Poor’s has downgraded the UK to AA, with a negative outlook, following the EU referendum decision.

S&P blames the Brexit vote, saying it has weakened the UK’s “predictability, stability and effectiveness” of policymaking in the UK.

It also believes that growth will be ‘significantly lower’ between 2016 and 2019, with growth averaging just 1.1% per year.

S&P says:

“In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating.”

S&P also warns that foreign firms are less likely to invest in the UK, while sterling could also lose its role as a global reserve currency.

Reaction to follow......

Updated

Economist: Worst crisis for UK economy since WW2

George Osborne’s claim that Britain’s economy is well-positioned to ride out the crisis has been roundly dismissed by a former chief economist of the Organisation for Economic Cooperation and Development.

The FT has the details:

John Llewellyn, founder of Llewellyn consulting and a former chief economist of the Organisation for Economic Cooperation and Development, said the UK was heading into recession at a time when its economy was not fixed and the BoE appeared to be the only functioning authority.

“We are more worried — for the UK, though importantly not for the world — than we were in 2008 or any other post-World War Two crisis,” he said. “The scale of all this will start to unfold in coming weeks.”

Llewellyn is also worried about Britain’s ‘twin deficit’ problem (the annual borrowing requirement, and the gap between imports and exports).

Click on this tweet for more....

The FTSE 250 index, made up of 250 UK firms not big enough for the Footsie 100, has been through a torrid two days:

The ‘250 is seen as a better gauge of the domestic UK economy. So this is Not Good....

Updated

Speaking of Hargreaves Lansdown.....

Banks and house builders have suffered particularly badly from the post-referendum selloff.

Financial services group Hargreaves Lansdown says:

Around £40 billion has been wiped off the value of banking stocks in the last two days, with over £8 billion wiped off house builders, representing around 18% and 37% of their total market capitalisation respectively.

Updated

European markets end sharply lower again

The effect of calming words from UK chancellor George Osborne early on Monday morning did not last very long, with investors bailing out of shares once again in the wake of the shock vote for the UK to leave the European Union, and the subsequent political chaos at the top of the country’s two main parties.

The FTSE 100 has now lost nearly £100bn in the two trading days since the result of the vote, falling another 2.55% on Monday, while the more domestically focused FTSE 250 slumped nearly 7% during the day and hit its lowest level since 2014. The 250 is down 14% in two trading days.

The pound has also been pummelled, falling to new 31 year lows against the dollar and dropping more than 2.4% against the euro.

Airline shares fell after a warning from easyJet, banks were sliding across Europe on worries about the effect on their balance sheets of the possible economic fallout from Brexit, with the European banking index down 7.6%, while UK housebuilders were also undermined by the vote.

But with investors seeking havens, gold and silver were in demand, with precious metal miners Randgold Resources and Fresnillo leading the risers in the FTSE 100. Dollar earning UK-listed companies such as AstraZeneca and Diageo also bucked the falling trend.

The yield on UK ten year gilts fell below 1% for the first time, another sign of investors seeking secure homes for their cash.

Joshua Mahony, market analyst at IG, said:

The pound and UK stocks have taken a hammering for a second consecutive trading day today, as investor sentiment continues to wane on the largely unknown consequences of Friday’s Brexit result. As the pound continues to suffer, investors are fast seeking havens, yet with the Swiss (who intervened on Friday) and Japanese (who likely will in July) central banks likely to devalue, the US dollar index has surged to a three month high.

What we really need is some form of decisive action, as financial markets seek reassurance that things will be OK. What we look likely to get is two months of political infighting, followed by another 20 months of uncertainty as the new leader somehow attempts to secure a deal which appeals to the many facets of the leave campaign. This will all take time and in the meanwhile, investors and businesses are left to ponder what the potential impact will be of this monumental decision.

The final scores showed:

  • The FTSE 100 finished 156.49 points or 2.55% to 5982.20
  • Germany’s Dax dropped 3.02% to 9268.66
  • France’s Cac closed down 1.86% at 4030.28
  • Italy’s FTSE MIB fell 3.94% to 15,103.58
  • Spain’s Ibex ended 1.83% lower at 7645.5
  • In Greece, the Athens market lost 2.89% to 519.33

On Wall Street the Dow Jones Industrial Average is currently down 273 points or 1.58%.

Updated

Ryan Sweet, director of real-time economics at Moody’s Analytics, has been talking about the effect of Brexit on the US economy, writes Dominic Rushe:

“The UK’s exit has created a significant amount of uncertainty and has unsettled financial markets. The three major channels are financial markets, confidence and trade. Financial markets pose the most significant and immediate threat to the US economy. US equities are likely going to have a rough few days.”

Moody’s expects the Brexit news to shave 0.1 of a percentage point off US GDP growth over the course of the next year but it shouldn’t have an appreciable impact on jobs or the unemployment rate.

Over the long-term Sweet said a Brexit shouldn’t be significant drag on the US economy.

We knew Friday was a turbulent day in the markets, and here’s some data from Hargreaves Lansdown to back it up.

The investment group said visits to its website on Friday surged to 636,061, up 50% on the previous highest daily record.

It said investors spent the equivalent of 17 and a half year’s normal activity on its website in one day. And the majority of the deal were buys (possibly not looking so good today but hey, long term).

The FTSE 100 has finished 156.49 points or 2.55% lower at 5982.20. However this is only the lowest level since 16 June, given the market bounce ahead of the referendum when everyone believed the Remain camp would win the day.

Here’s a useful little guide to some possible Brexit effects, courtesy of Open Europe:

Another stab at where markets and sterling may go from here, from Morgan Stanley.

In a weekend note (ie before today’s falls) it said:

Our foreign exchange strategists believe that the pound will ultimately fall to ¢1.25-1.30. Our equity strategists believe that European and UK stocks may need to correct a further 7-10% over the next several months. While these adjustments may seem harsh in light of Friday’s moves, we think they’re consistent with the uncertainty this vote has created. ¢1.25-1.30 for the pound would only begin to make the currency look cheap on a trade-weighted basis. A further 7-10% fall in UK and European stocks would simply bring forward multiples down to the long-run average. Both seem reasonable in light of increased uncertainty.

The FTSE 250 may be slumping faster than the top 100 index, but this is not the full picture. Michael Hewson, chief market analyst at CMC Markets UK, says:

The FTSE250 has borne the brunt of the sell-off in the UK market, dropping below its February lows, due to its heavier exposure to the UK economy, having fallen over 2,000 points in the last two days.

In order to give some perspective though over a five year time frame the picture does look somewhat different, with the FTSE100 only up 6% in that period, while the FTSE250 is still up over 30%, well above levels seen in back in 2011 when it was trading around the 10,500 level.

Elsewhere the banks are under pressure, and not just in the UK where Royal Bank of Scotland is currently down 15% and Barclays 17% lower. Hewson again:

Deutsche Bank has once again hit new record lows while Italian banks have also remained under pressure, with Unicredit, Monti Dei Paschi and Popolare all down heavily at new all-time lows, as concerns about the huge amount of non-performing loans prompt new concerns about their solvency.

Reports that the Italian government is weighing up measures that could add up to €40bn into Italian lenders haven’t been enough to support the share prices, probably down to the fact that these banks have non-performing loans in excess of €300bn.

Spanish banks have also slid back despite initially opening higher after the weekend election saw Mariano Rajoy once again fall short of an overall majority, though his party did increase the number of seats from the vote in December.

Cameron says the clear vote for Brexit must be respected.

The Bank of England and Treasury will not hesitate to take further measures to stabilise financial markets if required, he says.

David Cameron, who announced his decision to quit as UK prime minister in the wake of the referendum vote, is making a statement in the Commons on the vote.

Follow it in our politics live blog from here.

Over in the US, the latest service sector survey has come in weaker than expected.

The provisional Markit service sector PMI for June was steady at 51.3 compared to May, but lower than the 52 level expected by analysts.

And here’s the difference between the FTSE 100’s losses and its losses in dollar terms:

Despite the turbulence in the markets since the referendum result, the City fears there could be more to come until the current situation is resolved.

Russell Clifton, managing director of sales trading at broker Panmure Gordon said: “There is a perfect storm of uncertainty. Speaking to dealing desks, most of them are skewed to the sell side.”

Not only is there the Brexit fallout, leaving the UK’s two major parties in the midst of a leadership crisis, there is also the US election looming later in the year and the advent of summer, when trading volumes are thinner and market movements potentially more volatile as a result.

Clifton also pointed out that since the financial crisis, banks propriety desks - big players in the market - have been far more cautious, with the result that buyers are fewer and liquidity in the market is less than it was.

So far the FTSE 100 - down 2.3% at the moment after Wall Street’s opening fall - is outperforming the mid-cap FTSE 250 which has dropped 6.6%. The leading index is receiving some support from dollar earners and the fact it is a more global based index, whereas the FTSE 250 is predominantly domestic UK companies.

Meanwhile Panmure Gordon chief economist Simon French suggested: “If you want a clue where the market may go, in 2008 [financial crisis] there were six or seven days with more than 7% movements in dollar terms.”

Alternatively sterling, which has been pummelled along with stock markets, could benefit from recovering its position as a currency haven. Despite talk of UK interest rate cuts adding to the pound’s slide, French does not believe Mark Carney will cut borrowing costs further: “I don’t see the advantage in a rate cut since it will put more downward pressure on the pound.”

Updated

Another Brexit profit warning, this time from recruitment group InterQuest. It said:

In light of the uncertainty in the run up to the EU referendum, the company has experienced variable trading with clients delaying hiring decisions. The result of the referendum is now expected to prolong this period of uncertainty and, whilst it is too early to predict the longer term impact, the company expects trading conditions in the wider recruitment sector to remain challenging for at least the remainder of the current financial year.

The company is somewhat protected from wider recruitment trends due to its focus on hard to find niche candidates in rapidly growing sectors in the new digital economy, but as a result of the wider market conditions, the company now expects that group net fee income and EBIT for the current financial year will be materially below market expectations.

Its shares have slumped 28% to 78p.

Lunchtime summary: Manic Monday in the markets

Time for a quick recap.

Europe’s financial markets are being buffeted by fresh fears following Britain’s decision to vote to leave the EU last Thursday.

The pound has been driven down to a new 31-year low, hitting $1.3152 against the US dollar for the first time since 1985.

The selloff was relentless, despite finance minister George Osborne telling the media at 7am London time that the UK economy could ride out the current storm.

The London stock market has also been driven down by worries about the UK economy, and the relentless political infighting at Westminster.

The FTSE 100 is currently down 119 points at 6019, which means it has lost over £80bn since the start of trading on Friday.

The FTSE 250 index, which contains smaller companies, has shed 6% as investors raced to ditch stocks again.

Bank shares are being hit very hard, with one fund manager saying there is ‘capitulation’ in the financial sector.

Royal Bank of Scotland fell 25% at one stage, meaning taxpayers had lost £8m on their stake.

Barclays is down 15%. Some smaller banks, such as Virgin Money, have lost a quarter of their value today.

Housebuilders and estate agents have been hit hard, too, after Foxtons issued a profit warning. Some building firms have lost 40% of their value since the referendum.

While shares slumped, the prices of safe-haven government debt have hit record highs. That has driven down the interest rate on UK 10-year gilts to below 1% for the first time ever.

City economists are gloomy today, with some forecasting a UK recession due to the uncertainty caused by the Brexit vote.

Policymakers are scrambling to react to the unfolding drama in the markets. Bank of England governor Mark Carney has pulled out of a conference in Portugal, a move swiftly copied by US central bank chief Janet Yellen.

Carney’s predecessor, Lord Mervyn King, has heavily criticised the UK government for its tactics during the referendum.

He told the BBC that:

“If you say to someone ‘you’re an idiot if you don’t agree with me’ you’re not likely to bring them in your direction,

Chancellor George Osborne has ditched one of his pre-referendum threats, to hold an emergency punishment budget.

Osborne tried to sound reassuring this morning, saying:

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.”

However, the markets don’t seem terribly calm today....

The Dow is still falling....

Over in New York, the US stock market is falling at the start of trading.

The Dow Jones index dropped by 148 points, or 0.85%, at the open, with Brexit still on everyone’s mind.

That follows big losses on Friday, when the Dow shed almost 600 points:

The open of Wall Street

The Canary Wharf finance district of London.

Readers may have spent the weekend glued to the political crisis in Westminster, watching Euro 2016, or braving bouts of bad weather (we had hailstones in Oxford) to go shopping or tend the garden.

But City economists didn’t have time for fun. They were locked away, slashing their UK growth forecasts, following the Brexit vote.

Emily Cadman of the FT has helpfully rounded up the details:

Phillip Shaw, chief UK economist at Investec, said he believed the economy would enter “a period of near stagnation”, adding that a recession was a “realistic possibility”.

Citi, which has yet to formally change its forecasts, warned that downgrades were “likely”.

Goldman Sachs is now expecting annual growth of just 0.2 per cent in 2017, down from 2 per cent before the referendum.

George Buckley, chief UK economist at Deutsche Bank, said he expected Brexit to “focus minds” on the BoE’s interest rate setting committee on the long-term impact of slower growth — and a possible recession — rather than a short-term rise in inflation.

More here:

City economists slash UK growth forecasts

Larry Hatheway, chief economist at Swiss fund manager GAM, says investors are worrying that Britain’s economy could soon start shrinking.

“Against the backdrop of an already slowing UK economy, Brexit anxiety could precipitate a large enough reduction in consumer and business spending to tip the UK economy into recession.”

Britain’s decision to vote to Leave the European Union has forced investors to tear up some long-held beliefs.

That includes the idea that major advanced European economies are safer than developing markets.

Julian Mayo, Co-CIO of Charlemagne Capital, a fund manager, says the investors can’t say “with a straight face that emerging market assets are riskier.

“The historical position that political risk is significantly higher in emerging markets (EM) than developed markets (DM) is comprehensively and possibly irreversibly blown out of the water, with implications for the relative pricing of assets.

Even if we manage a reasonable renegotiation with angry Europeans, the vote gives massive encouragement for disaffected groups both in the EU and beyond, including separatist movements. Whether it’s Sturgeon, Le Pen, divisions in Spain and Italy, renewed stress within the Eurozone or the increasing possibility of a Trump win, pricing of risk across DM should surely rise.

America’s Treasury secretary Jack Lew has urged investors to remain calm following the Brexit vote.

In a CNBC interview, Lew said “there is an orderliness in the market reaction” to last week’s referendum.

He argued that banks are in a better position to handle the fallout than in 2008 (when many had to be bailed out), but warned that there will be a “long period of change” now, as new headwinds hit the global economy.

Ireland’s stock market is suffering a major selloff today.

The Dublin bourse has shed 7.7% today, making it the worst-performing eurozone market.

Lord King blasts government over Project Fear

Mervyn King, who steered the Bank of England through the last financial crisis, has criticised the government for trying to scare the public during the election campaign.

He was speaking to the BBC’s Laura Kuenssberg:

Updated

The FTSE 100 index has now shed 130 points today, on top of Friday’s 199 point losses.

That means the index has lost £85bn since the referendum result, in a blow to small investors and pension funds.

Updated

Investors are hammering the pound and the stock market because they have no real idea what the next plot twist in the astounding Brexit drama might be.

Joshua Mahoney of spread-betting firm IG explains:

For all of the statements of intent on both sides pre-referendum, it seems that much of it holds little basis in reality. First Farage admitted that the £350 million weekly NHS funding claim was a mistake and now Osborne has stepped back from his pledge to impose an immediate emergency budget.

The name of the game now is stability and for that reason Osborne is crucial despite his previous support for the remain camp. Amid all the calls for Corbyn’s head and the clamour for the new PM role, financial markets are trying to ascertain what this will truly mean for the UK, the European Union and global stability.

Many traders have concluded that Britain’s housing industry is heading into a downturn, sending shares in builders and estate agents slumping (not helped by Foxton’s profit warning today)

Ouch. The pound just hit $1.316, a new post-1985 low.

Chris Saint, senior currency analyst at Hargeaves Lansdown, has warned that the pound could suffer large losses in the weeks ahead:

“It’s a sea of red for sterling again this morning as investor sentiment continues to sour after the UK’s vote to leave the EU. The pound has slipped below €1.20 against the euro this morning for the first time in more than two years. It has also fallen to fresh lows under $1.32 against the US dollar – the lowest level since 1985.

Exchange rates will inevitably remain very volatile in the coming days and weeks as currency markets digest the far-reaching implications of the referendum result.

Further significant losses for sterling aren’t out of the question, especially if incoming data confirms the UK economy’s slowdown and lifts the likelihood of further Bank of England stimulus to support growth.

This tweet from the FT shows how smaller UK companies have been hit extra-hard by Brexit.

The purple line shows the FTSE 250 index, which has dropped more sharply than the FTSE 100 (which includes multinational companies who will benefit from the weak pound).

Share selloff gathers pace

Shares are hitting fresh lows after another wild morning in the markets.

The FTSE 100 index of major blue-chip companies is now down 100 points, a loss of 1.6%. That follows a 199-point tumble on Friday.

Easyjet has lost a fifth of its value, followed by Royal Bank of Scotland and Barclays (both down over 15%), and building firms such as Taylor Wimpey, Persimmon and Barratt.

The biggest fallers on the FTSE 100 this morning
The biggest fallers on the FTSE 100 this morning Photograph: Thomson Reuters

And there are bigger losses among smaller UK companies.

The FTSE 250 index, of medium-sized firms, has slid by 5% today. Small ‘challenger’ banks are being absolutely hammered, due to fears that the UK could be dragged into recession. Shawbrook, Onesavings and Virgin Money are all down over 20%.

Royal Bank of Scotland’s shares are worth watching closely amid all the market turmoil, as the taxpayer still holds a big stake.

Our City editor, Jill Treanor, explains:

At their current level of 170p, the share are back at levels they last traded at during February 2009, when the banking crisis was in full swing. The break even price for the taxpayer is 502p, and the only stake sold by the government in August 2015 was at 330p.

With any hopes of a further sell off of the government’s stakes off the cards, analyst at Deutsche Bank said RBS was the most afffected by Brexit of all the big UK banks. The analysts point out that the sale of the 300-odd branches to be branded Williams & Glyn - demanded by the EU at the time of the bailout - will be further delayed. And regulators are unlikely to sanction any distribution to shareholders.

Bloomberg are reporting that Janet Yellen, head of the US Federal Reserve, is no longer appearing at a conference in Portugal this week.

Yellen had been due to appear at the European Central Bank’s Sintra forum, alongside Mark Carney, Bank of England governor. Carney pulled out over the weekend, to focus on events in London.

Sports Direct rating slashed amid Brexit worries

It may not be the biggest issue to come out of a Brexit, but some in the market are pondering how Thursday’s vote will affect Sports Direct, the embattled sports goods retailer that operates a controversial warehouse in Derbyshire that is largely staffed by immigrant labour from eastern Europe.

The most pressing issue for the company, seems to be the price of sterling, so today’s selloff won’t help.

The group issued a statement on Friday stating that the currency’s weakness was “likely to impact purchases for which the company is currently not hedged for the FY17 period and beyond”. In plain English, that means it buys much of its stock from Asia and that is now going to cost it a lot more.

This morning, the investment bank Goldman Sachs has downgraded the retailer’s shares to a “sell”, reasoning:

“We expect the combination of a demanding European apparel demand environment (notably in the UK post the EU referendum), gross margin pressure (currency driven) and elevated opex growth due to a one-off wage bill increase to drive a lower EPS base in FY17 and FY18 (FY16- 18E EPS 36.05p/30.78p/32.45p), despite the European football event this summer”.

So that means investors being told to sell the sports chain’s shares by Goldman Sachs, which is an adviser to, er, Sports Direct.

Brits should brace for higher inflation, unless the pound gets its breath back and recovers.

Today’s tumble in the pound, and the plunge in UK borrowing costs, indicate that investors expect interest rates to be cut to record lows.

City analyst Louise Cooper says:

The move in sterling cannot be purely viewed as a negative dire message - “loss of faith in UK blah blah”, but also a realisation that interest rates will be cut by the Bank of England. Rate cuts tend to drive currencies lower.

It is particularly dramatic as at the end of last year, Sterling was pricing in a rate increase.

The pound has hit a two-year low against the euro, at €1.2017.

Pound hits new 31-year low

BOOM! The pound just hit a new 31-year low against the US dollar, as Brexit fears continue to grip the financial markets.

Sterling slumped over 4 cents to $1.3220, a level last seen in 1985, beating last Friday’s low.

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Thomson Reuters

George Osborne’s attempts to calm the markets are not preventing investors from piling out the pound.

Investors are nervous because they have no idea when the UK might formally begin the process of exiting the European Union.

Ken Odeluga, market analyst at City Index, explains:

The Prime Minister has stated that he intends to leave the task of triggering Article 50 to his successor and we don’t expect him to go back on that at the European Council summit this week.

That leaves sterling with no more visible means of support than it had on Friday.

Historic times.....

Updated

RBS and Barclays weren’t the only major companies to be BRIEFLY suspended this morning:

RBS and Barclays *briefly* suspended

Important point. There are reports that trading in shares in Barclays and Royal Bank of Scotland have been suspended due to the market panic.

That’s not strictly correct. Both shares were temporary suspended, after triggering automatic pauses due to high volatility.

But right now, RBS and Barclays shares are still changing hands -- down 14% and 10% respectively.

Updated

The pound is continuing to lose ground.....

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Thomson Reuters

After two hours of trading, the FTSE 100 index is down 71 points, or 1.1%, at 6067 points.

Although that’s a chunky fall, it’s still higher than during the wild selloff on Friday morning.

If trading ended now, it would be a one-week low.

The FTSE 100

Sterling is weakening.... now down 3.5 cents, or 2.5%, at $1.3331 this morning.

European banking shares are being pummelled hard by Brexit worries.

The overall European banks index has shed 5.7% this morning, with Royal Bank of Scotland plunging by 15% and Barclays down 10%.

Laura Foll, fund manager at Hendersons Global Investors, told Sky News that:

There are a huge variety of worries, which is why we’re seeing a bit of capitulation in financials.

If the economy slows, interest rates will come down, which means further pressure on bank profit margins, she explains. And if the economy enters recession, banks could start to take losses on their loans.

Laura Foll of Henderson Global Investors.
Laura Foll of Henderson Global Investors. Photograph: Sky News

Signs of angst in the markets...

The Osborn relief may be fading fast.... the FTSE 100 index is now down 80 points at 6060, its lowest point of the day.

UK borrowing costs hit fresh record low

In another historic development, the interest rate on UK 10-year bonds has fallen to just 1%, for the first time ever.

That means that worried investors are piling into ‘safe haven’ government debt, in case the Brexit crisis worsens further.

[The interest rate, or yield, on government bonds fall when prices rise]

Cheap borrowing costs are usually a good thing; in this case, though, it’s a sign of how anxious the financial market are.

My colleague Katie Allen says that the chancellor covered the right ground this morning, by insisting that the UK economy could survive the Brexit storm.

However, the relief may not last for long....

In a classic British understatement, the chancellor opined: “It will not be plain sailing in the days ahead.”

He also rowed back on the emergency budget he had threatened in the event of a leave vote. Now Osborne is saying the Treasury response to Brexit will not come until the autumn when the fiscal watchdog, the Office for Budget Responsibility, has had a chance to assess the economy and a new prime minister is in place.

In short, Osborne ticked a lot of boxes. So far the pound has steadied and theFTSE 100 is not down as sharply as it might have been. But the UK is facing a political crisis and an unprecedented process of untangling from the EU. The chancellor’s soothing words are unlikely to provide anything but a short-term tonic to nervous households, businesses and investors.

Here’s our news story about George Osborne’s attempts to reassure the financial world today:

It begins...

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.

Click here for more

Sterling is also losing ground against the euro this morning, in another blow to UK holidaymakers.

The pound has dropped 1.2%, or one and a half eurocents, to €1.212.

Back on referendum day, it was worth €1.30.

Sterling.

City firms are scrambling to slash their forecasts for the pound, following the referendum result.

Goldman Sachs now expects sterling to still be around $1.32 in three month’s time, not $1.47 as previously expected.

Bank of America Merrill Lynch now expects the pound to be worth just $1.30 at the end of 2016, compared to $1.59 before.

Updated

Ana Thaker, market economist at PhillipCapital UK, thinks the chancellor has helped to stop a sterling rout - for the moment, anyway.

She writes:

Notably, the currency remained steady following George Osborne’s speech this morning that reassured markets that the Treasury had engaged with global central banks and financial institutions to arrange contingency plans.

Moves in Sterling remains subject to any guidance from the government as to what the next stages may be with strong downside risk.

Big fallers on the FTSE 250 this morning include many significant UK companies, such as challenger bank Virgin Money (-9%), recruitment firm Hays (-9%), engineering firm Balfour Beatty (-8%), online supermarket group Ocado (-7.9%) and building group Redrow (-7.7%).

FTSE 250 down 2%

Sky News’s Ed Conway agrees that the markets are calmed than feared.

However, the FTSE 250 index – which contains smaller UK firms – is down 2% this morning.

Updated

Video: Osborne faces the music

Here’s a video clip of George Osborne’s speech, for those who missed it 90 minutes ago

Chancellor George Osborne seeks to calm Brexit fears

George Osborne has managed to reassure the City by joining those arguing for a delay before starting the formal process of leaving the EU.

Connor Campbell of SpreadEx explains:

It seems that George Osborne’s appearance this morning, his first since before the referendum results were announced, has somewhat calmed investors’ fears, the Chancellor joining many of his Tory colleagues in claiming there is no rush to trigger the dreaded Article 50 despite increasing pressure from Europe.

Updated

European stock markets are also calmer this morning, after George Osborne’s appearance:

Europe's main stock markets this morning.

It’s never nice to see a company’s share price tumble.

But some people might make an exception for Foxtons, the notoriously aggressive London estate agent. Its shares have plunged by 20% this morning, after warning that Brexit uncertainty will hurt its profits.

Foxtons floated on the stock market at 230p per share. They are now worth just 109p.

Budget airline easyJet is leading the fallers on the stock market this morning, down 8% after its profit warning.

But mining companies are rallying, along with UK companies who earn most of their money abroad (such as consumer goods group Unilever and pharmaceuticals firm Shire).

Here are the main risers and fallers:

Top risers
Top risers on the FTSE 100 this morning Photograph: Thomson Reuters
Top fallers on the FTSE 100 this morning
Top fallers on the FTSE 100 this morning Photograph: Thomson Reuters

The pound has recovered some of its early losses following Osborne’s statement, but is still down against the US dollar.

It is now trading around $1.345, a fall of 1.7% this morning - from $1.339 before the chancellor spoke.

London stock market falls again

Shares in London are falling at the start of trading. But it’s a smaller selloff than feared last night.

The blue-chip FTSE 100 index has lost 40 points in first few minutes of trading, a fall of 0.6%.

Housebuilders and banks are leading the fallers. Building firm Berkeley group has lost 8%, while Royal Bank of Scotland is down almost 6%.

That takes the Footsie down to 6100 points.

Overnight, the futures market had predicted that the FTSE 100 would fall by 2.8%. So perhaps George Osborne’s appearance this morning has calmed the situation a little.

British airline easyJet has also warned that profits will miss expectations.

It blamed strike action by French air traffic controllers, runway and congestion issues at Gatwick airport and severe weather, as well as Brexit uncertainty.

Foxtons issues Brexit profit warning

A Foxtons logo

London estate agent Foxtons has issued a profits warning, after counting the cost of the Brexit vote.

The company has warned the City that the uncertainty it was already suffering, due to the EU referendum, will continue for at least the next six months.

Foxtons had been hoping that the market would pick up in the second half of this year.

But Nic Budden, Foxton’s CEO, has now told shareholders that conditions won’t improve for a while.

“Whilst we had a strong start to the year, we said in our Q1 update that we expected the first half to be challenging ahead of the EU referendum.

Since then recent sales volumes have been slow as uncertainty and higher stamp duty has led many buyers and sellers to sit on their hands. The result of the referendum has increased uncertainty and is likely to mean that these trends continue for at least the remainder of the year.

Updated

Tweet of the morning....

Osborne speaks: instant reaction

Aengus Collins of the Economist Intelligence Unit wasn’t reassured by the chancellor’s comments:

City economist Sam Tombs disputes Osborne’s claim that the UK economy is in good shape to handle Brexit:

Duncan Weldon of the Resolution Foundation says that Osborne is relying on the UK’s central bank to fight the crisis.

Osborne: No emergency budget despite Brexit

George Osborne speaking at the Treasury
George Osborne speaking at the Treasury Photograph: Thomson Reuters

Chancellor George Osborne is speaking now, outlining the government’s response to the Brexit crisis.

He warns that it is “inevitable that the UK economy will have to adjust”, but claims that the economy is as strong as it could be to face the challenges ahead.

My colleague Heather Stewart is watching at the Treasury.

Osborne says he favours delaying triggering Article 50 -- to start the process of leaving the EU – until it’s clear what the terms would be.

That might alarm EU leaders, who want Britain to exit the building sharpish. But it might calm the City, as it gives some breathing space for the political crisis raging in Britain to calm down.

And he also indicates that there will NOT be an emergency ‘punishment’ budget to tackle the consequences of Brexit. Instead, action will be taken in the autumn (when a new prime minister will have been chosen).

That’s a u-turn from Osborne, who had threatened tax rises if Brits defied the government and voted to leave the EU.

Q: Will there be a recession, chancellor, as you warned before the referendum?

Osborne ducks the question, saying only that there will be an ‘adjustment’.....

Our politics liveblog has full details:

Pound pummelled in early trading

Sterling has begun the week with a serious bout of Monday morning blues.

Heavy selling in Asia has pushed the pound down by almost three cents, or 2%, against the US dollar, to $1.3394 this morning.

And there’s no relief from City traders, who have now returned to their desks.

The pound is now only 1.5 cents away a new 31-year low. Remember, it was trading around $1.45 in the run-up to the referendum.

Kit Juckes, foreign affairs expert at Societe Generale, explains why the pound is so weak:

With recriminations, two main parties in turmoil and nothing but questions and uncertainty as far as the eye can see. I see no reason to buy the dip.

Investors are expecting shares in London to fall sharply at the start of trading, at 8am BST.

IG, the spread-betting firm, is predicting that Europe’s main stock markets will fall by around 2%:

Updated

The agenda: Market mayhem to continue

Good morning.

After three of the most dramatic days of British political drama in living memory, the financial world is bracing for more turmoil this week.

Britain’s decision to vote to leave the EU has left investors in a state of shock, and likely to send shares sliding across Europe again.

Friday’s sharp selloff, which wiped $2trillion off global markets, looks like the start of months of upheaval.

Both UK major political parties are in a state of crisis – with the Conservatives looking for a new prime minister, and some senior opposition Labour party members trying to force leader Jeremy Corbyn out.

http://www.theguardian.com/politics/2016/jun/26/corbyn-to-hold-crisis-talks-as-labour-mps-try-to-force-him-out

So with uncertainty everywhere we look, there’s little reason for traders to pile into the pound either. So sterling could well head back towards 31-year lows this morning.

Overnight, Chinese premier Li Keqiang has warned that Britain’s vote to leave the European Union has increased uncertainly in the global economy.

In London, chancellor George Osborne is about to deliver an emergency statement outlining the government’s response to the referendum vote.

Mark Carney, Bank of England governor, has been due to attend an event in Portugal today.

But that trip is off, with Carney staying in London - presumably to co-ordinate the Bank’s response to the crisis.

The prospect of a new financial crisis is already alarming policymakers around the globe.

Christine Lagarde, head of the IMF, has pointed out that markets were wrongfooted by the Brexit vote.

But she also argues that the Bank of England et al have done the right thing:

“But there was no panic and the central bankers did the job that they were prepared to do just in case, which was to put a lot of liquidity on the markets.”

America’s top finance official, Jack Lew, is due to give his take on the crisis later today.

We’ll be tracking all the financial action through the day.....

Updated

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