BEDFORD, MA, June 27, 2016-

By David Katsnelson, Director, Macroeconomics, RISI

To the great surprise of virtually all observers, the United Kingdom voted on Thursday to withdraw from the European Union. The immediate impact of the vote was felt in financial markets around the world, which reacted very negatively to this unexpected development; the British pound fell more than 10% versus the US dollar at one point on Friday and continued lower on Monday, an extraordinary move for a developed economy currency. The larger question is how this will affect the economies of the UK, the eurozone and beyond, and the answer is far from clear or immediate. The referendum is just the starting point; British Prime Minister David Cameron (or his successor) will need to invoke Article 50 of the Treaty of Lisbon, which will begin the process of negotiating the disentanglement of Britain from the various EU institutions that it is now a part of, and the nature of the future relationship with the European Union. Under the treaty, the negotiators have up to two years to conclude new arrangements, with possible extensions. Prime Minister Cameron has indicated that his successor should lead this effort, meaning that it will not start up at least until Cameron's departure in October of this year.

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