From the Ring. Brexit, a blow to globalisation

Britain's stunning rejection of the European Union marks globalisation's biggest reversal since the end of World War Two. Thursday's vote to leave the EU, an unprecedented step, may in turn trigger more dissolution, both of Britain and the EU.

The range of economic and financial markets consequences are vast, but can broadly be summarised: people, goods and capital will all face increasing barriers to movement in the coming years, and not just in Britain.

This isn't inevitable, nor will it be evenly distributed across time and space, but it is going to bring with it substantial costs.

“The UK has taken a significant step back from globalisation. That's a trend gaining political support across the West. Such a significant secular shift has the potential to have substantial implications for growth, corporate profits and asset prices in the medium term,” Ric Deverell and Neville Hill of Credit Suisse wrote in a note to clients.

“We think the repricing in many markets has further to run.”

That's an admirable understatement.

Slowdown in global growth

One market far away from Britain and perhaps the most important in the world already repriced, drastically, in the hours after the result became known. Futures prices that track expectations of future Federal Reserve policy moves are showing a higher likelihood of a cut in US interest rates before a rise.

Whereas on Wednesday the chances of a rate increase by November's US presidential election were put at more than one-in-three, markets now see no chance of a hike by then and a one-in-eight possibility of a cut. That's because Britain's decision to leave the EU not only adds to the conditions contributing to a secular slowdown in global growth; it increases the chances of further shocks.

The fire next time

Indeed, one of the most unsettling aspects of the upset vote was the huge gulf between the electorate and the read taken of events by the elites who do most of the world's investment, analysis and journalism.

The read-across from this to the US presidential election, featuring Trump, is a grim one. If you think global capital and trade flows are under threat now, wait until there is someone in the White House whose policies would result in a global trade war and who has elastic views about the meaning of honouring sovereign debts.

But really, even if Donald Trump does not win, globalisation is already, by some measures, in a retreat that is likely to last. Three of the main legs of globalisation: immigration, trade and capital mobility are all under varying degrees of duress.

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