Closed Brexit live – EU discusses UK’s divorce terms

EU summit after British referendum to leave bloc

European leaders met today to discuss the UK’s fate after it voted to leave the EU. The British prime minister, however, was not among them.

Back home the attention was on the twin battles to lead the country’s major political parties.

Key points

  • David Cameron called on Jeremy Corbyn to step down as Labour leader “for the national interest”

  • François Hollande said London should lose the right to clear euro-denominated trades

  • Liam Fox threw his hat into the ring in the Tory leadership contest; Tom Watson said that he would not enter a Labour contest

  • Stephen Crabb launched bid for Tory party leadership

  • The FTSE 100 recovered all post-Brexit losses

  • Sterling was steady at $1.35

Welcome to Wednesday’s live coverage of the fallout from last week’s UK vote to leave the EU.

Some key things to watch out for today:

- EU leaders will discuss the UK’s exit terms
- Nicola Sturgeon will be in Brussels to plead Scotland’s case
- The Tory party will open nominations to replace David Cameron
- Labour leader Jeremy Corbyn is expected to face a leadership challenge

For those who went to bed early: Prime Minister David Cameron had his last supper at the EU last night.

The FT’s Brussels bureau chief Alex Barker reports that the atmosphere as Cameron sat down for dinner with the other 27 EU leaders was “sober but for the occasional laugh”.

Emerging from the British prime minister’s three-hour summit farewell on Tuesday, one northern European leader remarked that given the circumstances it could have been far worse — “but only nice things can be said about the dead”.

Indeed, behind all the pleasantries there was the feel of a Brussels wake, as Europe grappled with a Brexit vote that has upended Britain’s political establishment and left the EU bracing for its first big divorce.

Over a starter of quail salad and a main course of poached veal, almost 25 leaders spoke into the night, bidding farewell to the union’s second-longest serving leader, recalling centuries of shared history and preparing to bring an end to Britain’s 43-year experiment in sharing sovereignty.

Angela Merkel, the German chancellor, described the occasion as sad — “but it is a reality”.

“We’re politicians and we shouldn’t be detained for too long by sorrow,” she said after the dinner. “We made our feelings clear [but] we have to accept reality and draw the necessary conclusions.”

Read Barker’s full dispatch here.

And the Conservative party candidate backing begins. Liz Truss, secretary for Environment, Food and Rural Affairs, joined team Boris, writing a piece in today’s Telegraph where she described the former London mayor articulating a vision of “a prosperous modern, liberal Britain outside the EU”.

Though I took a different view during the campaign, Boris argued his case with passion and conviction

A spot of good news for British homeowners amid all the gloom. Nationwide’s monthly house price index showed year-on-year growth picked up to 5.1 per cent in June. Read the full story here.

Markets are due to open in Europe in 15 minutes.

Meanwhile, the FT’s Peter Wells reports from Hong Kong that “stocks in Asia continued a tentative global rally as an overnight bounce in the British pound offered investors some reprieve from the Brexit-driven turbulence of recent days”.

He adds:

European equity barometers are indicated to open with gains of up to 1 per cent and US index futures show the S&P 500 on Wall Street later adding 5 points to 2,041.

Sterling, which has borne the brunt of investor angst in the wake of the UK’s decision to leave the EU, was relatively steadier, down 0.1 per cent in early European trading at $1.335. The currency jumped 0.9 per cent on Tuesday, having fallen by a total of 11.1 per cent over the previous two sessions.

Read Wells’s full market update here.

The shock Brexit vote result yielded winners and losers in the hedge fund sector. The WSJ has this interesting tidbit:

Seeking more insight, some investors turned to other intelligence, and some paid upwards of a half million dollars to get Harvard historian Niall Ferguson’s private views.

On June 9, Mr. Ferguson predicted there was a 65% chance voters would elect to remain in the union. On June 14, Mr. Ferguson lowered the chances to 55%, and it was 50% immediately just before voting began.

French President François Hollande heightened fears of a Brexit fallout for the City of London last night, saying the City will no longer be able to clear euro-denominated trades after the UK leaves the EU.

The FT’s Jim Brunsden and Anne-Sylvaine Chassany reported from Brussels:

Speaking at the end of a summit in Brussels where EU leaders started trying to pick through the wreckage after David Cameron’s referendum defeat, Mr Hollande warned that it would be unacceptable for clearing — a crucial stage in trading of derivatives and equities — to take place in the UK.

“The City, which thanks to the EU was able to handle clearing operations for the eurozone, will not be able to do them,” he said. “It can serve as an example for those who seek the end of Europe . . . It can serve as a lesson.”

Read their full report here.

Senior Labour figures are now openly talking of the possibility the party could split over the Jeremy Corbyn leadership row.

Margaret Beckett, who famously described herself as a “moron” to have nominated Corbyn, says there are people around the leader “prepared to see the Labour party split rather than for him to go”.

Describing Labour’s travails as a “family trauma” the former minister and onetime Labour party leader told the BBC Today programme

“Part of what came out of the turbulence of the last day or so is a realisation that there are people around Jeremy who are prepared to see the Labour party split rather than for him to go. And that is anathema to everybody who thinks we need to get rid of this (Conservative) government and the further damage that a right wing, an even more right wing, Tory government would do. That’s what makes it urgent. The Labour party has to get its act together.

John Kerry, US secretary of state, has hinted that Brexit might not actually happen. He was in Brussels earlier this week to help calm nerves following last week’s vote.

Here are some of the comments he gave overnight, via AFP:

Cameron “feels powerless – and I think this is a fair conclusion – to go out and start negotiating a thing that he doesn’t believe in and he has no idea how he would do it.

“And by the way, nor do most of the people who voted to do it,” Kerry said, apparently referring to “Leave” campaigners such as former London mayor Boris Johnson, now the frontrunner to replace Cameron as premier.

Asked by the panel moderator if this meant the Brexit decision could be “walked back” and if so how, Kerry said: “I think there are a number of ways.”

Kerry’s comments add to a growing sense in some quarters, perhaps best summed up by this New Yorker cartoon tweeted by Lawrence Freedman, professor of War Studies at King’s College London.

Emoticon FTSE 100 opens +1.7%, FTSE 250 opens +1.4%

David Allen Green, who has been blogging all week about the (un)likelihood of the UK ever actually serving notice to the EU, has something new this morning looking at comments from European Council president Donald Tusk. It’s well worth a read.

These remarks, by themselves, do not mean that the Article 50 notification will never be made; but they do mean that the European Council accepts that the referendum, by itself, was not the (or, even, a) decision, and that the European Council accepts that there should be delay in the decision being made.

Read it in full on his website here.

More detail on the UK market open from the FT’s Michael Hunter:

The FTSE 100 continued to recover in early trade on Wednesday, with financial stocks once again leading the rebound at sector level. Barclays led its peers higher, with a gain of 4.6 per cent. Lloyds Banking Group was up 3.4 per cent and Royal Bank of Scotland up 3.3 per cent.

Overall, London’s main equities index rose 1.6 per cent to 6,241.05. As the rebound entered its second session, it trimmed the FTSE 100′s decline since the start of trade on Friday, when the result of the referendum was announced, to 1.6 per cent.

The mid-cap FTSE 250, seen as more representative of the domestic UK economy, rose 1.2 per cent to 15,688.0 , also led by financials. Its fall since the start of trade on Friday was reduced to 9.4 per cent.

The pound is taking a bit of breather so far today, holding steady at around $1.335. For the latest, fastFT has this.

Lithuanian president Dalia Grybauskaite has arrived for the second day of the European Council meeting in Brussels.

“We all need to wake up and smell the coffee,” Grybauskaite said, “And the coffee will be discussions on our future.”

When asked about UK Prime Minister David Cameron, Grybauskaite said: “It’s not about him today.

“Today is about us, about what we are going to do, about our unity, and about preparations for the transitional period for British withdrawal.”

Cameron left Brussels after a reportedly sober dinner with EU leaders last night.

When pressed on the outlook for the EU once the UK has left the 28-country bloc, Grybauskaite said: “Of course we will move on. Who will stop us?”

What will happen to the millions of Brits living in the EU? The FT’s Naomi Rovnick has been trying to find out.

The 1.2m British expatriates living in EU countries face losing the right to stay in their properties year-round as well as the ability to work visa-free, lawyers and property experts say.

Full story here.

European Commission president Jean-Claude Juncker has also already arrived for the second day of discussions.

This from his deputy chief spokeswoman Mina Andreeva:

Juncker has another busy day ahead of him. Later this afternoon, he is expected to sit down with Scottish First Minister Nicola Sturgeon, who wants Scotland to remain the EU despite the UK voting to leave last week.

Margrethe Vestager, the European competition commissioner and model for the Danish politician Birgitte in the TV series Borgen, has just been asked whether the UK crisis was also a wake up call for the EU to change its ways.

“The (alarm) clock has been ringing for quite some time and maybe the snooze button was hit for some years,” she said, but added the crisis was entirely of the UK’s making.

“This is not about us. This is about the UK,” she told the BBC Today programme. “And the very unfortunate thing and the reason people are so sad is they think it is going to happen – that the UK is going to leave.”

Our daily Brussels Briefing has arrived. You can read it here.

EU leaders resume their meeting this morning with one conspicuous absentee. David Cameron is locked out of deliberations – the first time in more than 40 years that a UK prime minister has been excluded. Better get used to it.

Last night saw one of the more awkward dinners in recent diplomatic history, as Mr Cameron tried to explain the meaning of Brexit to his sombre European counterparts.

Firmer start around Europe in equities:

- Dax up +1.0%
- Cac 40 +1.14%
- FTSE MIB +1.8%
- FTSE Eurofirst 300 +1.33%

We’re starting to get summit arrival pictures of the (now) 27 EU leaders. But here’s the one that really matters.

Time to check in on the banks. RBS shares are up just shy of +3% so far this morning. That takes the loss over the past five trading sessions to -20%.

The UK car industry has warned that lack of access to the single market could put jobs and growth at risk, the FT’s motor industry correspondent Peter Campbell reports.

The warning comes after new figures showed a record year for the sector.

Turnover rose 7.3 per cent to £71bn, while the number of cars rolling off UK production lines climbed to 1.7m.

Britain is on track to make more cars by 2020 than at any time in its history.

But the Society of Motor Manufacturers and Traders, the industry body, warned that the EU was a crucial trade partner for car makers, who export around 80 per cent of the vehicles made in Britain.

Read more on fastFT here.

Last night was David Cameron’s last dinner date in Brussels. We’ve been looking back at the prime minister’s past forays into Europe – read our run down of the good times and the bad here.

Justice secretary and prominent Leave campaigner Michael Gove went to bed early last Thursday, thinking the UK had voted to remain in the EU — only to be woken up at 4:45am on Friday to discover the opposite was true, his wife, Sarah Vine, has written in a column today in the Daily Mail .

I was just drifting back to sleep when my husband’s mobile rang. Fumbling, he picked up the call. I could hear every word.

‘Michael?’ an excited, if slightly weary, voice said. ‘Michael, guess what? We’ve won!’ Thus began the strangest, maddest and, without a doubt, most surreal few days of my life.

What I thought would bring to an end to months of uncertainly and anxiety — polling day itself — has, in fact, turned out to be merely the start of it.

Read Vine’s full column here.

Sajid Javid says Conservatives are “all Brexiteers now” as the business secretary says he would stand on a joint ticket in support of Stephen Crabb, the work and pensions secretary, to be the new party leader and prime minister.

Both were leading members of the Remain campaign. But Mr Javid, who says he would be chancellor if Mr Crabb wins, told the BBC Today programme:

“There is no distinction anymore if someone was a Brexiteer or a Remainer. In some ways we’re all Brexiteers now. We’re all Conservatives and we all need to come together with the right type of leadership to implement the people’s decision.

Mr Javid said Mr Crabb had “absolutely what it takes ” to lead the country in this “difficult” time.

The Brexit vote has triggered outflows from UK equity funds but perhaps not the hemorrhaging that might have been expected given the extent of the stock market sell-off, according to EPFR Global.

It says as Friday’s sell orders cleared, Monday data showed that UK Equity Funds posted their second largest daily outflow quarter-to-date and fifth largest over the past 12 months.

Monday’s redemptions, while significant, do not suggest a full-scale rout. Many investors moved to the sidelines ahead of the vote – a net $2.8 billion was pulled out of UK Equity Funds between mid-April and mid-June – and a majority of those that remained appear to have heeded professional advice not to lock in the portfolio and foreign exchange losses that have accumulated in the wake of Thursday’s referendum.

EPFR adds that flow data do show that institutional investors bet on a Remain vote in the days leading into the June 24 vote while retail investors continued to pull back.

EPFR also said its flow data had been signalling for some time that mutual investors view the EU as the weaker of the two parties on either side of the ‘Brexit’ vote.

Year-to-date flows expressed in % of AUM terms shows that, even with the pre-vote outflows, UK Equity Funds are in the middle of the pack while funds dedicated to Germany, Italy and Spain have experienced much bigger relative redemptions.

Lithuanian president Dalia Grybauskaite told reporters, “We all need to wake up and smell the coffee,” on her way into the second day of the European Council meeting in Brussels earlier this morning.

The FT’s Jim Brunsden has these statements from other EU leaders making their way into the Justus Lipsius building for the second day of discussions.

Belgian Prime Minister Charles Michel: “Great Britain cannot afford a long soap opera” over its exit.

Luxembourg Prime Minister Xavier Bettel: “We have more need than ever for a united Union rather than a disunited kingdom.”

Estonian Prime Minister Taavi Roivas: “We need to respect the British request to have some room. Clearly there can be no negotiations before notification though.”

The Sun, the UK’s biggest selling daily, reckons that Boris Johnson’s campaign to replace David Cameron is picking up steam. It believes he now has has the support of 100 MPs. Here’s the paper’s summary of who’s backing the former London mayor, and who is not.

Nominations in the Conservative leadership contest are set to open at 6pm today.

But that is not the only major event happening in Conservative circles this evening, the FT’s Lucinda Elliott writes.

City financiers will be mingling with Conservative cabinet ministers at the Hurlingham private members’ club in Fulham, west London, for the Tory party’s annual summer fundraising ball​.

The summer party often attracts attention for its big-ticket auction items. In 2014, the FT’s Kiran Stacey reported that Prime Minister David Cameron was lined up to play doubles tennis with the wife of a former Russian minister who paid £160,000 for the privilege.

Yet another Labour party resignation — though this time, it is not an MP who is stepping down.

Sky’s Ed Conway reports that French economist Thomas Piketty has left Jeremy Corbyn’s economic advisory council.

But it looks like the resignation has little to do with the ongoing attempts to unseat Corbyn.

Heightened uncertainty around the outcome of the EU referendum caused demand for housing to fall to its lowest record since November 2013, according to the UK’s National Association of Estate Agents (NAEA) May Housing Market report released today.

Estate agents recorded an average of 304 house hunters registered per member branch in May, as uncertainty in the lead up to the referendum stalled buyers. This was down six per cent from April, and the lowest since November 2013 when 292 buyers were registered per branch.

Mark Hayward, managing director, at the NAEA comments:

As a result of the vote for a Brexit, we expect international investors to look a lot harder at the UK as a potential market to buy in and this will have a knock on effect on the house building sector, as investments may be delayed or put off completely. Although in the short term, we believe that house prices will remain stable, we cannot be certain about the next quarter as political uncertainty and market unrest could affect the housing market

Index Ventures, one of Europe’s leading venture capital firms, has insisted it is still bullish on the continent’s tech scene, despite the UK voting to leave the EU.

In a statement headlined “Never mind the bollocks, we’re still bullish on Europe”, the firm said:

A palpable sense of sadness has now descended on London. For close to half the British population, Brexit means the end of a dream to bring Europe closer together and to create an integrated, frictionless market among its members. Something noble that sprung from the aftermath of WWII is now gone. Brexit was clearly not the desired outcome for us or for the vast majority of the entrepreneurs we have backed. Nevertheless, we have no choice but to accept it as the outcome of a fair democratic process.

In the face of uncertainty over the UK’s status in Europe, entrepreneurs will adapt and other European tech ecosystems across the continent will rise to the challenge, ensuring that Europe as a whole continues to thrive. London will remain a key hub for entrepreneurship even as other cities like Berlin, Helsinki, Paris, Stockholm, Copenhagen, Amsterdam, Barcelona and Lisbon rise in importance. Our hope is that the EU will heed the only positive message of the Brexit decision: that the need for reform is alarmingly urgent, which will further accelerate and streamline the development of these and other entrepreneurial ecosystems across Europe.

Read the full statement here.

An early sign of Brexit jitters hitting Europe?

Following two months of rising confidence, the eurozone’s headline economic sentiment measure slipped 0.2 points to 104.4 in June. Analysts had expected the reading to stay flat with no change.

Read more on fastFT here.

The FT’s John Authers on the changes in asset allocation that investors must now make:

Nominations in the Conservative leadership contest will not open until 6pm today, but the betting markets are already predicting former mayor of London Boris Johnson will come out on top.

Betfair, the online gambling marketplace, places Johnson with 45 per cent implied odds of winning the race, compared to 33 per cent for home secretary Theresa May and 7 per cent for work and pensions secretary Stephen Crabb, who is expected to formally announce he is standing at an event in London that is set to start imminently.

Meanwhile, forecasters at the Economist Intelligence Unit predicted in a note this morning that Johnson will succeed David Cameron in Number 10.

French economist Thomas Piketty has confirmed to the FT that he stepped down from his post on Labour’s economic advisory council “a couple of weeks ago”, the FT’s Gemma Tetlow reports.

Piketty, best known for his best-selling book “Capital in the Twenty-First Century”, said:

“I confirm that I have stood down a couple of weeks ago, not because of political disagreement, but simply because I was never able to find the time to be properly involved in this Council.

“That being said, I am of course deeply concerned with the Brexit vote, and with the weak campaign of Labour (even though Corbyn is obviously not the primary responsible for this disaster).”

The Fed is worried about Brexit. This from the FT’s Sam Fleming in Washington.

The UK’s vote to exit the EU has boosted global risks and may have knock-on effects for the US economy and monetary policy, a senior Federal Reserve policymaker has warned.

Jerome Powell, a member of the Fed’s Board of Governors, said it was too soon to jump to conclusions about Thursday’s shock vote, but that the events in the UK had the potential to create new headwinds to growth around the world, including in the US.

Read in full here.

What does Angela Merkel want from the Brexit vote and subsequent negotiations? Ulrich Speck, a foreign policy analyst, has written this piece for the FT’s comment section:

The best outcome for Ms Merkel would be if the British government would simply not trigger Article 50. The second best would be an agreement that keeps the UK close to the EU in terms of market access and political co-operation. What the German chancellor wants to prevent is an inimical divorce that would destroy trust and humiliate Britain.

Photos are starting to come through from Nicola Sturgeon’s visit Brussels where she has had a warm welcome.

Scottish First Minister was received Wednesday morning by Martin Schulz, president of the European Parliament., according to Reuters. “We regularly meet with regional leaders,” said John Schranz, Schulz’s spokesman. “Of course, the times are extraordinarily.”

Sturgeon was expected to meet later Wednesday with the leader of the EU executive, Commission President Jean-Claude Juncker. Below is a handout photo from the EU on her meeting with Mr Schulz.

Ratings agency Moody’s has changed the outlook for 52 sub-sovereign credit to ‘negative’ from ‘stable’ as a result of the referendum result. That means borrowers like:

- Local Authorities
- Transport for London
- Universities
- Housing Associations

This is why:

Moody’s believes that there will be a prolonged period of uncertainty following the “leave” vote, which will weigh on the UK’s economic and financial performance. A downturn in the economic outlook in the UK has direct implications for UK sub-sovereign budgets through (1) potential slowing or declining transfers received from the central government, which make up a significant share of their revenue; and (2) further potential austerity measures included in the government’s next Budget and next Spending Review.

The agency cut its outlook for the UK government last Friday, straight after the vote.

Five top economists have criticised Jeremy Corbyn for not campaigning “more strongly to avoid” the UK leaving the EU, but have stopped short of following in Thomas Piketty’s footsteps and resigning from Labour’s economic advisory committee.

In a joint statement today, Diane Elson, Mariana Mazzucato, Anastasia Nesvetailova, Ann Pettifor and Simon Wren-Lewis said the EU referendum result “is a major disaster for the UK”.

But they added that it is “now crucial to find a way to resolve the economic and political impasse with the EU in a way that brings the least damage possible to the UK economy and those of our neighbours”.

“We will be honoured to advise the Labour Party in the future, should our advice be sought once the current situation is resolved,” they said.

Earlier today, the “Capital in the Twenty-First Century” author confirmed he had stepped down because he was “never able to find the time to be properly involved”.

“That being said, I am of course deeply concerned with the Brexit vote, and with the weak campaign of Labour (even though Corbyn is obviously not the primary responsible for this disaster),” Piketty added.

Scottish first minister Nicola Sturgeon is making the rounds in Brussels this morning.

The SNP leader is set to meet with European Commission President Jean-Claude Juncker later this afternoon.

It looks like she just sat down, however, with Manfred Weber, a key ally of German chancellor Angela Merkel who leads the European Parliament’s centre-right EPP group.

Sturgeon wants Scotland to remain in the EU, despite the UK voting to leave the bloc last week.

Stephen Crabb has formally declared his candidacy to be Conservative leader party, using a metaphor Boris Johnson deployed to describe his own leadership ambitions.

“On the rainy rugby fields of west Wales I learnt it’s not a question of waiting for the ball to pop out of the back of the scrum. If you want it, you do what’s required and get your hands on it.” he told a press conference.

“I am standing to be Prime Minister. I love my country. I love my party. And I genuinely believe the values that I represent are exactly those required to get us through the challenges ahead”.

Crabb supports remaining in the EU, but in 2005 he initially backed the anti-EU Liam Fox for the party leadership. Controlling immigration, a “close” relationship with the EU and the end of supremacy of EU law are the three driving principles he put forward to the party.

The contest will not open until 5pm today. Crabb took over the role as pensions secretary after Iain Duncan Smith’s surprise resignation in March.

Sajid Javid, business secretary, will be backing Crabb’s campaign vying for the position of chancellor of the Exchequer. Ruth Davidson, the leader of the Scottish Conservatives, said in January that she would “find it very hard to vote for anyone else” if Crabb stood for the leadership.

Ireland has long been seen as the eurozone economy most exposed to risks emanating from a UK outside of Europe. And those fears seems to be trickling through to the government bond market where yields on 10-year government debt have fallen to their lowest-ever recorded level today, writes the FT’s Mehreen Khan.

Ten-year yields, which move inversely to prices, fell by 0.32 basis points (0.032 percentage points ) to hit a record low 0.598 per cent in this morning’s trading, reflecting investors’ concerns that the soaring growth levels in the former bailout economy will suffer after the Brexit vote.

Read more on fastFT here.

More on Nicola Sturgeon’s tour of the EU institutions, from the FT’s Duncan Robinson in Brussels:

Scottish first minister Nicola Sturgeon discussed the politically vexed issue of the country’s future in the EU during a series of meetings with senior politicians and officials in Brussels.

The first minister met influential MEPs and is set to meet the president of the European Commission this evening. However Donald Tusk, the president of the European Council, which represents heads of governments, declined to meet the Scottish leader.

Some officials have been keen to play down the ramifications of the meetings. When asked what Jean-Claude Juncker will discuss with the Scottish first minister, one senior EU official replied: “regional policy”.

Following a meeting with Martin Schulz, the president of the European Parliament, Ms Sturgeon said: “I set out very clearly Scotland’s desire to protect our relationship with the European Union. This is very much an initial meeting, so people understand that Scotland does not want to leave the European Union.”

Scotland voted overwhelmingly to stay in the EU during last week’s referendum, reopening a debate about the country’s independence and whether it could remain a member of the bloc.

For now, EU officials in all of the branches are taking a clear line that any such move is not possible, and that Scotland would have to reapply as an independent state. While some lawyers have raised the idea of a “reverse takeover” – with Scotland inheriting the UK’s status – senior officials in Brussels are sceptical, with one pointing out that such a move would require “huge constitutional changes”.

The big sell-off over? Here is the FT’s Katie Martin on the outlook for markets on Wednesday, including sterling continuing its rally and whether the global shock from the Brexit vote is easing.

News from Labour leadership impasse: shadow secretary of state for education, Pat Glass, has resigned. She was appointed on Monday.

The Labour shadow cabinet resignation klaxon sounds again, this time it’s Emma Lewell-Buck, shadow secretary for communities and local government.

Reminder – Prime Minister’s Questions starts shortly.

A scoop from the FT’s Sarah Neville, Henry Mance and Jim Pickard on the new Whitehall Brexit unit, which will be in charge of unravelling the UK’s EU membership:

Olly Robbins, a civil service high flyer responsible for policy on immigration and free movement at the Home Office, is expected to be appointed to head a new Whitehall Brexit unit.

The unit, whose full membership will be announced within days, will initially also include senior civil servants from the Cabinet Office, Treasury, the Foreign Office and the department for business, innovation and skills, as officials begin the mammoth task of extricating Britain from the EU.

Expertise from other departments, such as the department for environment, food and rural affairs, will be brought in as negotiations with Europe continue. When the unit is at full strength it may employ up to 30 people.

Insiders say that the officials seconded to the new department will not only look at the different scenarios for a future relationship between Britain, Europe and the rest of the world. It will also support David Cameron in his European dealings for the remaining weeks of his premiership.

Oliver Letwin, one of the prime minister’s most trusted “fixers”, will play what the Cabinet Office has described as “a facilitative role hearing views from across the government and outside on issues that need to be considered by the new unit”.

Another less-than-cheery assessment of the UK economy post-Brexit vote, this time from Fitch.

There is little doubt that the UK referendum vote in favour of leaving the EU will take a significant toll on the economy, Fitch Ratings says. Businesses are facing a surge in uncertainty on three separate fronts – the future of the UK’s trading relationship with the EU, the shape of the regulatory framework, and domestic political uncertainty, including the future status of Scotland.

This uncertainty will prompt firms to delay investment and hiring decisions, while elevated financial market volatility will further damage business confidence.

UK GDP growth is expected to fall to around 1% in both 2017 and 2018. This is a downward revision of 1 percentage point in each year.

Stephen Crabb has become the first Conservative to declare his candidacy for the leadership of the party, and the job of prime minister. The blue collar candidate – so-called because of his working class upbringing – is making a pitch to be the “unity” candidate to heal divisions in the party following the EU referendum.

His offer includes:

- Controlling immigration – a “red line issue”.
- Maintaining “as close an economic relationship with the European Union as we currently have”.
- Ending the supremacy of EU law.

He says there is no need for an early general election to provide him a personal mandate. That would create “further uncertainty”. He also said there was no hurry to implement Article 50 of the Lisbon Treaty, to start the negotiations on the UK’s exit.

But he was adamant there is no place for “a continuity Remain campaign to subvert the process we are undertaking”.

He said: “Brexit needs to be what it says on the tin.”

Lastly he acknowledged he was not the favourite but said:

Look, I know how to lay a bet. I know what the odds are, and I’m not afraid of being the underdog. But I actually think there is space in this leadership campaign, in this leadership debate, there is space for, not just for a coronation, not even just for a two horse race. And I think we’ve got to get past this Boris – stop Boris – dichotomy.”

Gordon Brown, the former Labour leader said the UK’s vote to leave the EU has been “the biggest revolt against elites that we’ve seen in a long time.”

Giving a post-Brexit speech today in Edinburgh hosted by the IPPR, a think-tank, Mr Brown said the leave vote was a rebellion of industrial towns against a leaderless globalisation and urged Scotland to avoid “a danger of new polarisation” between the “new Unionists” and nationalists.

A more sanguine view of the Brexit fallout: Hedge fund Toscafund has issued a strategy document, saying many of the fears over the impact of the EU referendum vote have been overplayed. Savvas Savouri, Toscafund chief economist, argues:

One of the most remarkable experiences of recent days is having discussions with ‘market participants’ who were not working in capital markets in 1992 and many had not even been born then. I do not pick this year randomly but because it was the year the UK made its EXIT from the ERM. In the wake of this the pound fell, GDP recovered strongly (see Chart 2 and 4) and the FTSE ultimately surged. Well, it should really be déjà vu all over again.

And the reason it hasn’t been thus far being precisely because so many participants in capital markets were not participating then. Well, I can say that most of the Partners at Toscafund were very much working in finance in 1992 and we know what comes next.

Yes, the pound has weakened. But no, it has not done so by a percentage which has not been experienced before; experienced before and, I hasten to add, enjoyed the competitiveness-enhancing consequences of before (see Chart 1). Yes, the UK equity market recently moved lower, but not by a percentage outside of our experiences. And whilst equity prices edged downwards, Gilt prices went higher, for me a reassuring and more than justified move given the UK economy’s sound fundamentals.

Toscafund’s forecast for UK GDP growth in 2017 is a range of 1.8-2.2 per cent.

Prime Minister David Cameron and Labour leader Jeremy Corbyn are currently squaring off in the House of Commons in the first Prime Minister’s Questions (PMQs) since the UK referendum last week.

Corbyn, who lost a vote of no confidence among Labour MPs yesterday, 172-40, is asking Cameron about the state of the UK economy after last week’s vote.

Cameron has insisted that the UK is in a “strong position”, but added: “I don’t belittle at all that consequences will be difficult.

“There are going to be some very choppy waters ahead,” Cameron added.

The Prime Minister confirmed he would be meeting with members of his business advisory group, and other business bosses from such companies as Siemens, tomorrow.

Cameron also rejected Corbyn’s suggestion of abandoning chancellor George Osborne’s so-called fiscal rule, which involves strict rules for government spending.

Osborne does not appear to be in the chamber.

Cameron has just delivered a blistering blow to Corbyn, saying:

“It may be in my party’s interest for him to sit there, it’s not in the national interest.

“For heaven’s sake, man, go!”

Douglas Carswell, Ukip’s sole MP, is booed as he stands to speak.

Here’s a video of David Cameron delivering that jibe to Jeremy Corbyn:

Meanwhile, in Germany, the business newspaper Handelsblatt reports that Wolfgang Schaeuble, the German finance minister, has come up with a post-Brexit reform plan for the EU which would see stricter budget rules for member states and a downsized European Commission.

The FT’s Berlin correspondent Guy Chazan writes:

Such a plan will inevitably encounter resistance from France and Italy, which have borrowed to stimulate their economies. Handelsblatt said the proposals marked a counteroffensive against calls from Rome and Paris for a common eurozone budget, an idea which is viewed sceptically in Germany.

“Member states should not be discharged from their responsibilities to ensure stable budgets and growth-friendly structural reforms,” Handelsblatt quoted German experts as saying in the reform proposals.

The paper suggest that the EU have the right to reject EU member states’ draft budgets if they don’t comply with the bloc’s deficit rules.

It also floats the idea of an independent authority to oversee member states’ budget policies, a function currently carried out by the Commission. Mr Schaeuble has previously criticized the Commission for being too lenient in its interpretation of the EU Stability Pact, the rules underpinning Europe’s single currency.

Douglas Carswell has responded to those jeers with this:

After a sombre start, it has livened up. Another highlight:

In case you’re wondering, Alan Duncan is backing Theresa May to replace David Cameron.

In response to Scotland’s decision to negotiate a separate deal with the European Union and protect its place in Europe, David Cameron insisted Britain must remain united. The only way to negotiate “the best possible outcome for a United Kingdom” is to develop the “closest” relationship with Europe, he replied to Angus Robertson’s question.

Nicola Sturgeon, the Scottish First Minister, was received Wednesday morning by Martin Schulz, president of the European Parliament, and is expected to meet later with European Commission president Jean-Claude Juncker.

Newly-installed mayor of London Sadiq Khan has said he wants the UK, and London in particular, to remain part of the EU single market, and this afternoon he announced that he has appointed a deputy mayor for business to lobby on behalf of London.

Full statement from Khan here.

Credit Suisse is not putting high hopes on a reversal of the Brexit vote – either through a fresh election or a new referendum on the terms of the EU divorce. Here is part of a strategy note out today:

We still struggle to see a general election that would involve a change in governing party. New leaders often take over without calling a general election (John Major and Gordon Brown the most recent examples).

We think it is very unlikely that a Conservative government would call for a general election unless it thought it was highly probable to win it (moreover, to call it, the government would need to lose a vote of no confidence, or two thirds of MPs would need to vote in support of an earlyelection, given the Fixed-Term Parliaments Act).

There is a chance that Labour split into a new party (similar to the SDP) and this forms a coalition with pro-European Tories to bring down the government, but, again, we feel that this is a low probability at the moment given the ideological divide on non-EU issues.

A ‘Brexit lite’ option is still a 30% probability

We have a 30% chance of a second referendum which would take place if Boris Johnson is able to negotiate better terms (i.e. a brake on EU immigration). In February, Boris Johnson suggested that the point of the first referendum was to get better negotiating terms for a second referendum, and the Irish and the Danish held two referenda on the Nice and Maastricht Treaties).

More likely is a very protracted divorce, whereby the UK does not trigger Article 50 for a long time. Legally, it seems hard for Europe to force the UK out of the EU if the UK does not invoke Article 50. Angela Merkel appears to favour a slower exit than many of her European peers.

More on that speech by former Prime Minister Gordon Brown from the FT’s Scotland correspondent Mure Dickie:

Gordon Brown is calling for UK to pursue a Norway model‎ for relations with the EU but with additional “safeguards” on immigration. He warned of possible cost to an independent Scotland of losing access to UK single market (but intriguingly didn’t completely rule the option out).

Consensus Economics has pulled together new estimates for growth in developed economies following the Brexit vote. They are pretty ugly.

Britain’s benchmark FTSE 100 is edging closer to wiping out its Brexit-induced losses on Wednesday, regaining 75 points today, a rise of 2.6 per cent. The rally has now driven the FTSE to just 22 points shy of its pre-Brexit level of 6301.

But it’s firmly a tale of two FTSEs on the British stock market, as the domestically focused FTSE 250 is still languishing 9 per cent below its June 23 highs, writes the FT’s Mehreen Khan.

Despite rebounding around 1.8 per cent on Wednesday to 15,783 points, the index still needs to regain 1,550 points to reach its pre-Brexit high. It is now trading at levels last seen in February.

Unlike its blue-chip counterpart, the FTSE 250 is mainly composed of domestic companies, whose earnings are denominated in sterling and are not set to gain from the near 10 per cent depreciation in the pound seen after the vote.

In this regard, the FTSE 250′s fortunes are a better gauge of investors’ fears over the state of the British economy after its momentous decision to leave the bloc.

Read more on fastFT here.

Morgan Stanley’s strategy team has been looking at the timeable for Brexit. It expects Article 50 to be triggered in the fourth quarter this year and the exit to start by start 2019.

Our expectation is that the incoming UK government would trigger the exit negotiations fairly soon after it has been formed. This is partly since other EU governments have indicated that they want the negotiations to start reasonably soon, with Angela Merkel saying that negotiations “shouldn’t take ages”, but, “I would not fight for a short time frame” (Deutsche Welle) and excessive delay could complicate the negotiations with the multiple European elections next year in the Netherlands, France and Germany.

Further, we expect pressure from political expectations in the UK to make progress on exit after the clear vote to Leave. Under the Article 50 rules, which specify a maximum two year period (extendable only by unanimity), to complete negotiations, this then puts the UK exit from the EU by the start of 2019. However, we think it will take considerably longer – likely several more years – to complete negotiations on the new trade arrangements.

The bond market now expects no rate increase from the Bank of England for the next five years. Before the vote last week, Gilt were pointing an increase within 32 months. That means the ECB is now thought more likely to raise rates first.

More here.

Goldman Sachs (European HQ pictured above) and Morgan Stanley are not decamping yet from the City of London. Here is Reuters on statements from the banks today:

LONDON, June 29 (Reuters) – U.S. investment banks Goldman Sachs and Morgan Stanley have denied speculation they are poised to shift London-based staff and operations to Frankfurt as soon as Britain’s divorce proceedings from the European Union formally begin.

“We have not made any changes to our real estate requirements in Frankfurt as a result of the referendum result,” Goldman said in a statement issued on Wednesday.

“As we have already communicated to our employees, there is no immediate change to the way we conduct our business or where we conduct our business.”

Echoing its Wall Street rival, Morgan Stanley also moved to quell chatter it was planning to relocate to the German financial hub when the UK government evokes Article 50 — the first official step in its disentanglement from the 28-nation bloc.

“Morgan Stanley does not have pre-let office space in Frankfurt,” the spokesman said in an emailed statement.

Goldman CEO Lloyd Blankfein said the bank, a big donor to the defeated ‘Remain’ campaign had planned for either referendum outcome for many months, in a statement issued after the outcome of the historic referendum became clear on Friday.

“Goldman Sachs has a long history of adapting to change, and we will work with relevant authorities as the terms of the exit become clear. Our primary focus, as always, remains serving our clients’ needs.” (Reporting by Sinead Cruise; additional reporting by Lawrence White; Editing by Rachel Armstrong and Louise Heavens)

Ed Miliband, former Labour leader, joins the chorus of those calling on Jeremy Corbyn to stand down “painful as it may be for him and his supporters”.

“I’m not a Blairite. I’m not a plotter”, he insists. “It’s not ideological”.

He asks Labour party members to listen, as he speaks to BBC radio. “I have not been rushing to the microphones. If anything, I’ve been defending him when I’ve been asked.”

“It is precisely because of the gravity of the national moment… that we cannot have a party leader that 75% or more of the representatives in parliament don’t have confidence in,” he adds. “This goes way beyond party interest.”

As a side note, he calls Nigel Farage’s comments on racism “totally irresponsible”. He also has a dig at Boris Johnson for not having a plan.

EU leaders have given their strongest signal yet that Britain will not be allowed to cherry pick its new relationship with the bloc, warning that it will not relent on the rules for access to its internal market.

Speaking after EU leaders met for the first time as a 27-member bloc in Brussels today, European Council president Donald Tusk said there would be “no single market a la carte”.

He said leaders made it “crystal clear” that Britain would have to accept all of the four sacrosanct rules guarding the freedom of people, labour, capital and goods if it wishes to access the single market.

Read more on fastFT here.

David Cameron has just made a statement to the house on the meeting this week of the European Council.

The prime minister reported the tone was one of “sadness and regret” at the UK’s decision to quit the European Union.

However he said there had been “a lot of reassurance that until Britain leaves we are a full member.”

On the timing for triggering the Article 50 to start to process of negotiating the terms for the UK exit, he said there “wasn’t a great clamour to trigger this straight away”. He said European leaders agreed all involved needed ” to take time to get this right.” He also said other leaders “understood and respected” that the decision to trigger that process would be the responsibility of a new prime minister.

On considering the UK’s new trade relations, he said it would be difficult to have “intensive discussions” with other countries “but we can certainly have some pathfinding discussions” in the period before the UK leaves the EU.

Questioned by Kate Hoey, the Labour MP and leading Leave campaigner, whether the UK can ignore EU directives during that interim period, he stressed: “We have to be very clear. We’re members of this organisation. We pay into this organisation and that continues until the day we leave and therefore I think we have to obey the rules and laws”.

If you’re wondering how long Jeremy Corbyn can last, then you might be interested in reading: Jeremy Corbyn: how long can he last? – our FT Magazine profile of him from last year.

In his latest column, the FT’s economics editor Chris Giles appeals to former mayor of London Boris Johnson – the current odds-on favourite to become the next leader of the Conservative party – to “make the next move” and “stop dithering” over Britain’s future.

The man who hopes to head the government within weeks has not decided his policy for leaving the EU. He is even less prepared to enter Number 10 than Gordon Brown was. Of course, we all know why Mr Johnson has not stated what sort of Brexit he favours because any choice he makes will be a betrayal.

He could choose to retain membership of the European single market, keeping Britain a member of the European Economic Area while ditching its EU membership. That would betray those with legitimate concerns about immigration, and the xenophobes.

He could prioritise the strict control of movement of people. That would betray his beloved London and the young. Or he could dither and betray the whole country as it sinks into recession.

The time has passed when you can be all things to all people, Mr Johnson. To govern is to choose and your choice is who you betray.

Read Giles’s full column here.

A sign of widely-forecast chill in investment into the UK:

(Bloomberg) — The Nordic region’s largest buyout fund is scrapping plans to expand in the U.K. following the country’s decision to leave the European Union.

EQT Partners AB has abandoned plans to add an office focused on investing in equities to its credit platform in the U.K., Managing Partner Thomas von Koch said in an interview at the firm’s London office Tuesday.

EQT is pulling back on its plans in the U.K. following the country’s decision to leave the EU on Thursday, which threw stock and currency markets into turmoil. Nervous investors and unpredictable markets will make U.K.-focused companies less attractive for now, von Koch said.

“Following Brexit, we have decided to put equity expansion in U.K. on hold for the moment, and continue our focus on the Nordics and Germany,” he said. “We believe in collaboration, not isolation.”

Want to ignore/cancel/reverse the Brexit vote? Well now you have someone to give money to. This from the FT’s Jane Croft:

A leading tax barrister has set up a crowdfunding appeal to finance legal advice on whether parliament needs to pass legislation before it invokes Article 50 of the Lisbon Treaty to exit the EU.

Jolyon Maugham QC Is seeking to raise £10,000 on website CrowdJustice – which crowdfunds legal cases – to take advice from public lawyers and constitutional experts on the issue.

The plan would be to write to the government to seek the legal position on who exactly does that notification.

The legal issue centres around whether the notification to the European Council of Article 50 might require a new act of parliament – rather than simply being triggered by the prime minister.

Mr Maugham set up the web page on Tuesday night and has so far raised £3,000 within hours. Donations are capped at £100 per individual.

Angela Merkel has also spoken following the EU Council meeting in Brussels, telling reporters after the discussions that Europe had to focus on “jobs, growth and competitiveness” in a post-Brexit world.

This from the FT’s Berlin correspondent Guy Chazan:

She said the EU was determined “to meet the challenges of the 21st century also as a 27-member bloc.” But she said the organisation must provide prosperity and security to its citizens. It wasn’t a case of “more or less Europe” but meeting its goals more effectively. “Often citizens don’t know why we’re doing things and what goal we’re pursuing,” she said.

Ms Merkel reiterated her position that Britain could not have access to the EU’s single market unless it accepted free movement of people. She acknowledged that Brexit would “create problems for our trade relations,” since Britain was the 5th largest economy in the world, accounting for 15-17 per cent of the EU’s GDP.

“That’s why we have an interest in focusing more on growth and efficiency to compensate for what we’re losing,” she said.

Scotland’s efforts to keep a place in the EU look to be heading straight into a brick wall, Tobias Buck in Madrid reports:

Spanish prime minister Mariano Rajoy has dashed Scottish hopes of retaining EU membership in the case of a British exit from the Union, insisting that there could be no separate negotiations between Brussels and Edinburgh.

“If the United Kingdom leaves [the EU], so does Scotland,” he told a press conference in Brussels on Wednesday. He added: “Scotland has no competences to negotiate with the EU. The Spanish government rejects any negotiation with anyone other than the United Kingdom.”

Mr Rajoy’s stance reflects long-standing Spanish opposition to the creation of breakaway states in Europe. Madrid itself faces a powerful independence movement in Catalonia. Voters in the prosperous north-eastern region of Spain elected a firmly pro-secession government last September that is officially committed to leading Catalonia to independence by next year.

Officials in Madrid worry that any signal of encouragement towards Scotland’s independence-minded government would further embolden the secessionist in Catalonia.

In case you missed the moment in PMQs earlier today when Prime Minister David Cameron told Labour leader Jeremy Corbyn to step down, you can watch a clip of it here:

French president François Hollande sought to reassure the UK that there was no plan to scrap the Touquet accord that allows the UK to carry out border controls, and keep unwanted migrants, on the French side of the Channel, reports Anne-Sylvaine Chassany, the FT’s Paris Bureau Chief.

“Questioning this accord under the pretext that there is a Brexit, that the UK will be negotiating an exit from the EU, makes no sense,” Mr Hollande said in Brussels on Wednesday. The socialist leader said the accord was signed in 2010 partly on humanitarian grounds to prevent migrants from risking their lives to get to the UK. “What can be reviewed is how to improve the living conditions of those migrants” who settle in makeshift camps in Calais (pictured above), northern France, he added.

Such improvements will be discussed with David Cameron on Friday, when both leaders meet to commemorate the centenary of the battle of the Somme.

The reassurance contrasts with the warning sent by economy minister Emmanuel Macron in March, who told the FT that with a Brexit “migrants would no longer be in Calais.” The French president had then comforted the minister by saying a Brexit would have consequences including on migrations.

However, the French president reiterated that euro-trade clearing activities would likely be repatriated to the continent. The city’s hard-fought right is an “exorbitant situation,” he said.

“As soon as the UK is not part of the EU, there is no reason that this continues,” he added.

The FT’s Alan Beattie has written a searing column urging voters not to elect journalists like himself (or Boris Johnson or Michael Gove for that matter) to high office. These are the killer paragraphs:

The first 72 hours of life out of the EU straitjacket were entirely predictable. Having won the referendum on a series of wildly contradictory and nonsensical promises, Mr Johnson initially went to ground and then announced his plan for the future by means of his regular column in the Daily Telegraph.

The piece that emerged was meandering, repetitive and hugely at odds with reality. Any journalist would recognise it as something written on deadline by someone way off his beat and out of his depth.

The chief executives of Britain’s biggest lenders were called into the Bank of England on Wednesday to discuss the impact on the financial system of the country’s vote to leave the EU in last week’s referendum.

BoE officials gave the bosses of big British banks a supportive message about the amount of liquidity in the system, while pressing them to keep lending to consumers and companies to avoid a repeat of the “credit crunch” that hit after Lehman Brothers failed in 2008, according to a person briefed on the meeting.

Bankers said it was expected to be the first in a series of mandatory “fireside chats” to monitor the effect of the Brexit vote, write Martin Arnold and Caroline Binham on FastFT.

The BoE declined to comment. The heads of the five major UK banks – HSBC, Barclays, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered – were present along with a few others including Nationwide and TSB. BoE governor Mark Carney made an appearance at the meeting on Wednesday, which was chaired by another senior central bank official.

Tough message just handed down by EU president Donald Tusk following the informal meeting of 27 heads of state or government in the bloc – the first, of course, without the UK.

After German chancellor Angela Merkel said the UK would not be allowed to “cherry-pick” compliance with EU rules in any post-Brexit deal, Mr Tusk warned Britain that the EU would not accept “a single market à la carte”.

Good afternoon. Today 27 EU leaders discussed the consequences of the British referendum for Europe. It was a calm and serious discussion, as it is a serious moment in our common history. Certainly one issue is clear from our debate. Leaders are absolutely determined to remain united and work closely together as 27.

We reconfirmed that Britain’s withdrawal from the European Union must be orderly and there will be no negotiations of any kind until the UK formally notifies its intention to withdraw. We hope to have the UK as a close partner in the future. It is up to the British government to notify the European Council of the UK intentions to withdraw from the EU. Leaders made it crystal clear today that access to the single market requires acceptance of all four freedoms, including the freedom of movement. There will be no single market “à la carte”.

We also discussed the fact that too many people in Europe are unhappy with the current state of affairs and who expect us to do better. Many recalled that for decades Europe was bringing hope and that we have a responsibility to return to that.

As you know it was a first exchange of 27 leaders after the British referendum and so it would be too early to draw conclusions. This is why we have started a political reflection on the future of EU with 27 states and will meet on 16 September in Bratislava to continue talks. Thank you.

Sajid Javid, the business secretary, has said that leaving the EU will make business more difficult for companies in the UK, writes Peter Campbell, Motor Industry Correspondent.

Speaking to the SMMT UK motor industry conference on Wednesday, he said:

This is a challenging time for British business. I don’t doubt that there will be difficult times for Britain.

We’re entering a period of uncertainty and – let’s be completely honest – we don’t know how long it will last.

This decision may make things a lot more challenging, but it won’t make them impossible.

He also insisted the UK will leave the EU, in a direct rebuttal to suggestions that Britain could postpone triggering Article 50 that begins a two-year countdown to a formal exit.

He said:

The people have given their orders, and as a cabinet minister it’s my job to put those orders into action.

I won’t be pointing fingers or reflecting on what might have been: The UK will be leaving the European Union.

Here is a video statement of the Donald Tusk delivering his message for the UK

lovely graphic here from the Eurasia Group, a political risk consultacy, on the potential for the Brexit vote to trigger similar moves elsewhere:

The FT’s Martin Sandbu has been looking over the various comparisons used gain a handle on Brexit economic damage (or as Chris Giles puts it the size of the “Boris Bust”.)

Even for so parochial an event as the UK leaving the EU, the key reaction may be from the Fed, which Martin sees as playing catch-up:

while the Brexit vote was unexpected, the need for more policy stimulus has been clear for some time: “That the Brexit crisis would happen was unforeseeable. That the odds were strongly that some negative shock would hit the global economy was very foreseeable indeed. And yet the Fed since 2014 has been actively making sure that it is unprepared.” Better late than never — but this lateness borders on the unpardonable.

All eyes are on Britain and Brussels; never take half an eye of the Fed.

Interestingly Vitor Constancio, the vice president of the European Central Bank, has been sounding an optimistic note about European markets, reports Claire Jones.

Speaking about the immediate market reaction to Brexit in Sintra, Portugal, today he said:

The results of the referendum did not create a systemic failure. Markets worked. There were buyers and sellers. Contrary to the scare stories that market liquidity had been killed by regulation, the scare stories did not materialise. Alan Greenspan said it could be another Lehman, but Alan Greenspan was wrong.

The euro has dropped only 2 per cent. We saw no pressure on the periphery. The effects on the bond market in general was not very significant… Our policies (of bond purchases of public and private sector debt) have been a very significant stabilising factor.

There seems to be quite a lot of mistrust of banks in Europe in general. Although it’s not clear what caused the sudden drop (in bank equity prices)…. It’s not just one country, there are examples of individual banks.

[The] risk is that banks could start a new phase of deleveraging, which of course would be bad for the economy.

He added:

The UK is not a major economic area. The pound is not a big international currency.

What is our response? We still have to wait a bit.

Gordon Brown has joined the crowd of Labour veterans that are critical of party leader Jeremy Corbyn.

The former prime minister – who himself did not win a general election but replaced Tony Blair in 2007 – told an event in Edinburgh that Labour risked becoming “an anti-globalisation protest party” under Mr Corbyn, according to the BBC.

I don’t think Jeremy Corbyn is going to stay. I think he is going to go, but I think the issue is how the Labour Party becomes electable

Earlier today, the previous leader of the party Ed Miliband said that Labour could not have a head that lacked the support of more than three-quarters of MPs.

The FT’s markets guru John Authers is puzzled at the US reaction to British woes. The US economy is strong, there is no sign of a sovereign crisis spilling over Europe, so why the panic?

And yet the S&P 500 tumbled some 5.4 per cent in two days, enough to bring the market back below its 200-day moving average. Even with Tuesday’s partial rebound, which was largely driven by a rising oil price, this remains the nastiest reverse since the sell-offs of January, which was sparked by an unexpected Chinese devaluation. Further, the internal movements within the market suggest extreme caution. Utilities and US real estate investment trusts — dull companies which pay a regular yield and, perhaps crucially, have minimal overseas exposure — have outperformed. The ongoing outperformance of high-yielding stocks, as in the S&P 500 Dividend Aristocrats index, took another leg up — even though defensive stocks are now blatantly expensive. At the other end of the spectrum, bank stocks have fallen and brokerages have taken the worst tumble.

Valuation, politics, the strong dollar: there are reasons aplenty, it seems. Click through for more

John Gapper, our top business commentator, has cast his mind back to a period that he is surely too young to remember, but which bears real significance to what may happen to Britain today: the time President John F Kennedy drove capital markets activity to London more than fifty years ago.

Now he fears for a similar shock hitting some of the knowledge powerhouses of “Roseland” (that’s “rest of the south east”).

The map of UK districts that voted Remain is oddly revealing about how the economy has changed. The cliché that London and Scotland voted Remain while England and Wales voted Leave is a half-truth. The biggest Remain splodge is London but then it spreads along the western motorway corridors through Oxford to Bristol, south to Hampshire and Sussex, and north-east to Cambridge … Here are the university cities and knowledge hubs of the modern economy, the towns full of high-priced houses and high-paid jobs for graduates (quite a few of them economic immigrants).

Being economically joined to Europe has been enormously helpful in two ways. First, it has bolstered the UK’s strength as a European hub through the services passport. This allows companies of all sizes, from technology start-ups to large investment banks to gain regulatory approval in the UK, and then operate seamlessly throughout the 27 other EU countries. Second, freedom of movement has enabled technology companies, for example, to operate in London with British, Swedish and French software developers. The mixing of skills has combined with liberal regulation and a deep capital market to create a strong technology cluster. It would inevitably suffer if the UK leaves the single market to curtail immigration.

Clumsy steps taken today – like Kennedy’s in 1963 – may have resonances that last half a century and beyond.

Despite the markets’ steady recovery in the past two days (update to come around 16:30), there is still a sense of shock amongst investors at just how horribly wrong those same markets called it, this time last week.

Sam Fleming and Stephen Foley are puzzling this out, over in New York. There are some uncomfortable insights for the global elite:

Markets may have missed the possibility that Leave would win the referendum because investors are part of an elite that talks among itself rather than to voters or other demographics, said Mr Fels. “Don’t trust your instincts, don’t trust the conversations you have with the people you normally talk to,” he said. Nicholas Colas, chief market strategist at the New York brokerage Convergex, agreed. “There are two halves of America that do not talk to each other. Asset owners do not understand what those people who do not have wealth think about the world,” he said.

The old tools are not working. The new ones do not seem to have been built yet.

Liam Fox, the former defence secretary who resigned amid controversy over the role of his unofficial adviser Adam Werritty, was earlier rumoured to be ready to offer his support to Theresa May in her bid to be Tory leader.

But Sky News is now reporting that he will actually stand for leader himself. More updates as we get them.

The unions are about to issue a statement reiterating support for Labour party leader Jeremy Corbyn, according to our political correspondent Jim Pickard.

The expectation is that the decision from the unions, which have supported Mr Corbyn in the past, will prompt critics of the leader to launch a formal leadership challenge.

Former shadow business secretary Angela Eagle is expected to be among those that will vie for the leadership.

People are rushing to call banks about their mortgages and currency, Emma Dunkley reports.

Executives from Barclays and HSBC both said that customers have been asking the banks questions more questions about the effect of the vote.

The head of personal and business banking at Royal Bank of Scotland added that people have been buying and selling much more foreign currency than usual.

More from Emma here.

Time for a market wrap, on a day where – seen from a certain angle – the markets in London have regained much or nearly all of the ground lost on Friday and Monday.

We say a certain angle because the performance of the FTSE 100, the most widely watched UK Index this last 30 years or so, is only partly relevant in circumstances like these. First, you need also to look at the FTSE 250, a more domestically focused index, without companies such as BP or Anglo American that really dance to a global beat. Here is the five day chart:

Those big commodity producers that populate the top end of the FTSE have been rejoicing somewhat at the recovery of oil.

The other major caveat is the currency, of course. The pound has recovered too, albeit the chart still resembles a climber struggling to his feet after falling off a cliff:

Finally, markets take a few days to sort the sheep from the goats – those that can shrug at the prospect of Brexit (or might even hope to benefit), from those in a whole heap of trouble. Here are two adjudged to be in the latter category, Barclays Bank and Taylor Wimpey the housebuilders. A recovery today, but, still, if you look hard you can see a Brexit effect:

It is fair to say that as the politics remains fluid, the markets will remain jumpy.

Quite an extraordinary story running on Sky News at the moment. They claim to have seen an email from Sarah Vine, wife of Michael Gove, which appears to express doubt about whether her husband should back Boris Johnson for Conservative leader, as has been widely rumoured.

According to Sky, the email, which was sent to Mr Gove and his aides, reads:

Very important that we focus on the individual obstacles and thoroughly overcome them before moving to the next. I really think Michael needs to have a Henry or a Beth with him for this morning’s crucial meetings.

One simple message: You MUST have SPECIFIC from Boris OTHERWISE you cannot guarantee your support. The details can be worked out later on, but without that you have no leverage.

Crucially, the membership will not have the necessary reassurance to back Boris, neither will Dacre/Murdoch, who instinctively dislike Boris but trust your ability enough to support a Boris Gove ticket.

Do not concede any ground. Be your stubborn best.


How long might it take for the UK to renegotiate its trade deals? Not even the World Trade Organisation seems to know.

Roberto Azevêdo has been speaking to the FT’s Pilita Clark on the sidelines of a climate conference in London. He said:

It could be anything.

To predict how long this is going to take is really impossible.

The UK’s current trade commitments were negotiated by the EU and cease once it formally leaves the bloc.

Mr Azevêdo added:

There are so many pieces that need to be put in place.

In many areas it cannot just be a cut and paste kind of exercise and also at the end of the day, the other WTO members will have to be on board with whatever is proposed.

Asked if this could take up to a decade, he said:

It’s really difficult to say, on that my crystal ball is not that good.

Many advocates of a Brexit have pointed to the UK’s WTO membership as a fall-back option. But that would mean imposing new tariffs on many goods and as Mr Azevêdo’s remarks point out negotiating the mechanics of that could take years to negotiate.

You may have noticed that the FTSE is flat since Thursday, there are a slew of stocks such as the housebuilders and banks that have really struggled so …… which companies are up?

Well, without applying a scientific filter, try thinking of a few companies that sell globally, are not tied too closely to finance, but are listed in the UK. Here is how aerospace manufacturer Rolls Royce, oil major BP and drug company GlaxoSmithKline have performed:

Of course, there is the usual caveat: multiply through by the weaker pound and you do not get the most wonderful return. But, still, not a bad Brexit reaction.

Lavazza anyone?

The Italian coffee group’s vice chairman has said it will have to cut its investment in the UK because of the vote.

In an interview with the FT’s Arash Massoudi, Giuseppe Lavazza said that the company will “have to adopt a contingency plan” because of the hit to the pound.

In the short-term we have to try to face the significant volatility especially in the currency markets. We will be impacted negatively by the devaluation of the pound and this will have to be offset by a re-allocation of costs inside the group. We have to find the money to support the cost of the devaluation of the pound. So this means we have to adopt a contingency plan.

The company has been investing in its UK business since 1990 and has 17 per cent of the country’s coffee market, which accounts for more than £50m of its revenues. Lavazza sponsors Wimbledon, the Royal Ascot and London Fashion Week.

Mr Lavazza also said that the impact of a Brexit for Italian companies could be felt far beyond the coffee industry. He cited a recent survey conducted by an Italian bank, which said that a Brexit could cost Italy’s food and drink industry €3bn over the next five to six years.

I think that the major point is that we are entering in a system that is much more fragile, compared to the system we had before the vote. From a European perspective to see one of the most important and dynamic economy leaving the Union, it’s pretty sad. It’s something over which we have to reflect on quite a lot.

Ken Livingstone, the former London mayor and staunch defender of Jeremy Corbyn, has begun the fightback for the embattled Labour leader on BBC News.

Earlier today, David Cameron stunned the Commons by demanding: “For heaven’s sake man, go!” But it looks like Corbyn supporters will try to use that quote in his defence.

Livingstone said:

If you see David Cameron saying Jeremy Corbyn should resign, that is a very good reason to stay.

He said the claims of anti-semitism in the Labour party (a story Livingstone helped to fuel with his comments about Hitler having been a zionist) were drummed up by Corbyn’s opponents. And he denied the criticism that Corbyn did not do enough to prevent Brexit:

They tried to start it up about anti-semitism – that didn’t work. Then they said Brexit was his fault, which it isn’t.

And he had a message for Labour’s mutinous MPs:

I think people will be appalled that after [Corbyn won] 60 per cent of the vote… that these MPs are now demanding that they can overturn that result in just over a year. If MPs don’t like how their members voted, they should consider their own positions, not try and get rid of the person those members voted for.

Nicola Sturgeon has been in Brussels trying to convince EU leaders that Scotland should be allowed to remain in the union.

Her tour was snubbed when French president Francois Hollande and Mariano Rajoy gave her the cold shoulder. Mr Rajoy said that “if the United Kingdom leaves, so does Scotland”.

But the first minister is still optimistic:

Once the UK’s negotiations start then all the options should be there on the table. I have found a willingness to listen, I look forward to continuing these discussions in the days and weeks to come.

A bid by François Hollande to grab some of the business that’s done in the City of London for Paris:

Tom Watson, Labour’s deputy leader, has been widely tipped to stand for leader should MPs force a race. But the BBC’s political editor Laura Kuenssberg is hearing otherwise:

In the betting markets, Tom Watson’s odds for being the next leader are lengthening and currently stand at around 10/1 – implying roughly a 10 per cent chance. Meanwhile Angela Eagle, expected to be his main contender is currently at 2/1 – implying roughly a 35 per cent chance. Though whether you still think the betting markets are the best guide after the last week is up to you…

It is hard to know where to look in terms of politics right now: the Labour party (whatever that is – see Kiran’s post below), the Conservatives and their own leadership race – or perhaps our eyes should all be upon Europe, like never before? Because European sentiment towards any UK deal is arguably going to be as significant in the next few months as the view of any domestic politician.

The FT’s Brussels team, Alex Barker, Jim Brunsden and Guy Chazan, have a story on EU leaders mulling over ideas coming out of Westminster. Compromise is NOT in the air:

European leaders have rebuffed David Cameron’s plea to recognise British voters concerns over uncontrolled migration, with a historic joint statement that hardened their conditions for allowing access to the EU single market in any Brexit negotiation. The move to scotch Westminster expectations of free movement curbs came after the EU 27 met in Brussels for the first time without the UK — a political watershed after 43 years of British membership.

“There will be no single market à la carte,” said Donald Tusk, the EU Council president, as the group met to set out the terms of engagement for any divorce talks in the wake of the Brexit referendum. Diplomats said the joint statement was deliberately toughened up after Mr Cameron’s bade farewell to the EU on Tuesday night claiming he would have avoided Brexit had European leaders let him control migration through an “emergency brake”.

This is the killer sentence:

With the explicit consent of Angela Merkel of Germany, a sentence was unexpectedly added to the joint statement on Wednesday making clear that “access to the single market requires acceptance of all four freedoms”, a reference to EU principles on the free movement of capital, labour, services and goods.

Pro Leave politicians were wont to say that European leaders, after the heat of the referendum battle had cooled, would take a softer approach, in the spirit of “free trade benefits all”. Perhaps the heat is yet to come out of the debate – it is less than a week, after all.

Tom Watson has called on Jeremy Corbyn to quit as leader of the Labour party, but ruled himself out of any contest. He has told the BBC:

To be leader of the Labour party you have to have the authority of members and members of parliament and he doesn’t have that.

He said that he had tried to discuss this with Corbyn, but:

He wasn’t willing to discuss that with me.

He feels very strongly that he has that mandate from the members. He holds less stock in parliamentary politics and that is where he is. He is being told to stay by his close ally John McDonnell.

And on his own position:

I won’t run. When I ran for deputy leader I said to our party members and trade unions that I believed my role was helping the party come back together.

The prerequisite for being deputy is that you never want to be leader.

And his message for Labour members?

If there is a leadership contest.. we will have to choose… who can be a prime minister.

Much of today has been dominated by announcements from senior politicians on whether they will or won’t run for the leadership of their respective parties. At around the same time Tom Watson was ruling out a Labour leadership bid (see below), Liam Fox was pre-announcing what appears to be his bid to run the Tory party live on LBC radio.

The former defence secretary would not confirm he was running, only saying that he will “make an announcement tomorrow”. But he seemed to set out his leadership stall, talking about the issues he thought were important:

We can’t allow the Conservative leadership campaign to be totally dominated by the issues of the referendum, there are many other issues I care very passionately about.

As a doctor, I care a great deal about what happens to our healthcare in this country. And as a former defence secretary I care what happens to our armed forces and I think we need to paint an optimistic picture of our country.

He even began to talk about his own upbringing – often a clear sign of leadership intentions:

I don’t come to the Tory party from a traditional Conservative background. My grandparents were miners and my father was a teacher and I grew up in a council house and I went to a comprehensive school.

Matteo Renzi, the Italian prime minister, has attempted to use the Brexit-related market turmoil to get the EU to agree to recapitalise his country’s banks without triggering bailout rules.

But that attempt appears to be running into resistance from Berlin and Frankfurt, reports Rachel Sanderson in Milan.

Angela Merkel had this to say earlier today:

We wrote the rules for the credit system, we cannot change them every two years.

Meanwhile Benoit Coeure, a board member of the ECB, was similarly frosty:

If bail-in rules are suspended, then it is the end of the single market as we know it.

Yesterday Mr Renzi said Italy would do everything to protect depositors savings. This was his response today:

We have a great capacity to respect the rules and will continue to do so.

While Italy’s negotiations are still in the preliminary stages, the government is looking at whether it can use national promotional bank Cassa Depositi e Prestiti, which looks after Italians postal savings, to put money into the banks. It is also considering buying a slug of the country’s €200bn in gross non-performing loans to creditors already considered insolvent. It wants a six-month suspension of state aid and bail-in rules to do so.

It is the fourth attempt by the government since last November to try to get approval from EU regulators to use state funds to bail out its troubled banks. All previous attempts were watered down so they did not break EU rules.

Thanks very much for joining us today. We’ll be back tomorrow for another day of whirlwind Brexit-related news.