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Both we and financial markets were surprised by the result of yesterday’s referendum. “Remain” had regained a lead in the opinion polls as the vote approached, so stock markets and sterling had been rising on the assumption the UK would remain in the EU.
It has been our long-standing expectation that the UK will vote to stay in the EU at the referendum on Thursday 23 June 2016. This judgement has been based on the belief that the British electorate is internationalist in nature and would respond to the exhortations of political leaders to continue with EU membership.
In late January, we published our market outlook for 2016, in which we said we expected stock markets to make progress after a weak start to the year. Our view was that the recent unsettling news from China shouldn’t derail economic growth in the developed world and markets would recover.
2016 has started with a re-run of the challenges from the summer of 2015, as the fall in Chinese share prices and the yuan have undermined confidence in financial markets. As before, clumsy actions by the authorities appear to have sparked the situation.
In July 2015, George Osborne presented his post-election Budget against a background of an economy that had grown at 3.0% in 2014 and was enjoying zero inflation. The revenue-raising measures he announced then allowed the Office for Budget Responsibility (OBR) to reduce its projection for net government borrowing in 2015/16 to £74.1bn, a 20.9% drop from the previous year.
On 8 July 2015, George Osborne, the Chancellor of the Exchequer, delivered the first all‐Conservative Budget since 1996 as a “Budget for working people”. The first Budget after a general election is traditionally the time for introducing unpopular measures. The Chancellor is not constrained by a coalition partner and has nearly five years until the next election.