UK markets shudder after Brexit vote, sterling hits 31-year low

Fri Jun 24, 2016 12:08pm EDT
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By Jamie McGeever and Patrick Graham

LONDON (Reuters) - Sterling plunged to its lowest in three decades and the value of London's big banks sank by the most since the 2008 financial crisis as Britain's shock vote to leave the European Union triggered turmoil on global financial markets on Friday.

The damage to London's stock market eased as the day wore on, helped by expectations the weaker pound would help many UK companies and by the Bank of England's promise of 250 billion pounds of extra support. .FTSE

But shares in Royal Bank of Scotland (RBS.L: Quote) and Barclays (BARC.L: Quote) fell by around 18 percent and, even with an afternoon recovery, sterling's fall was the biggest since the system of free-floating exchange rates was introduced in the early 1970s.

Major bank analysts predicted the currency would fall further in the months ahead, as financial investors price in the long- and short-term uncertainties unleashed by the Brexit vote and the scale of the damage to Britain's economic prospects.

"There is a grave danger of further weakness in the weeks ahead," said Societe Generale strategist Kit Juckes. "Indeed, the view of policymakers will be that a weaker pound is a vital economic shock absorber."

The moves dwarfed falls on "Black Wednesday" in 1992 when the pound was driven out of the pre-euro Exchange Rate Mechanism and London bankers who had worked through the night said it was the most volatile day's trading they had ever seen.

"The word 'unprecedented' is often used too much, and people often reach for the hyperbole. But this is truly unprecedented," said Steven Major, head of global rates strategy at HSBC in London.

HSBC cut its forecast for the pound to $1.20 and 92 pence per euro by the end of this year, and several other banks said they expected the value of the British currency to fall further.   Continued...

People eat and drink in the sunshine in London's Canary Wharf financial centre June 24, 2016 after Britain voted to leave the European Union in the EU Brexit referendum.       REUTERS/Russell Boyce