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The sun rises Friday morning as votes pour in from all corners of the UK, revealing the decision of a country which at the last moment decided to stick with the status quo after all.

Sterling, the easiest thing to buy or sell during darkness, will have been moving in response to the announcements of referendum returning officers all night. The London dawn will launch a special early session for trading in European government bonds.

For the traders and investors arriving early at their desks in case of the tumult a departure from the 28-country bloc had been expected to prompt, there is relief at a world returning to normal.

However, as markets move they will have to consider a fundamental question: what exactly does normal look like, now?


A year ago, just after the Conservative party won the surprise election which set the UK on a path to holding its contentious vote on membership of the EU, the FTSE 100 stock market index traded above 7,000. A pound was worth $1.59, and a 10-year Gilt offered buyers a yield of 2.2 per cent.

On Tuesday morning the respective values were 6,200, $1.47 and a mere 1.26 per cent.

Removing the possibility of a withdrawal from the common market, and the political uncertainty entailed in prolonged negotiations about Britain’s future relationship with the European Union, will probably prompt all three numbers to rise.

Beyond that lies a debate about the strength of UK economic growth, future corporate profits, and the moment when the Bank of England will increase interest rates for the first time since the summer of 2007.

Trevor Greetham, who invests in a variety of asset classes for Royal London, is an optimist. “The economy has been slowing down because of the uncertainty to do with the referendum,” he says.

Resolution should swiftly see a rebound both in business confidence and the property market, he argues, as activity postponed till after the vote resumes. “We’re currently forecasting a November interest rate hike, and the market is just so far from expecting that it’s untrue.”

Others are more circumspect, arguing that there is not much time in the second half of the year for a rebound to show up in the economic data which would guide any central bank activity. Activity may not bounce straight back after a contentious campaign.

“If we’re looking at the UK, and some of the softness in the data, actually it’s possible this softness could continue just because it’s created its own dynamic,” says Justin Knight, interest rate strategist for UBS.

Indeed, look further abroad and the big questions are about the pace of growth in the world economy. Bond yields, which move inversely to prices, have collapsed to zero in Japan and Europe in response to bleak prospects for expansion and inflation.

Andrew Lapthorne, part of Société Générale’s alternative strategy team, says “investors will still be facing the prospect of negative rates and negative yields on a huge range of bonds, massive corporate leverage with worryingly rising delinquencies and of course expensive equity markets and falling profits”.

He argues that after the initial celebration, “when the fog clears all of the problems will still be there”.

Jim Leaviss, head of fixed interest at M&G Investments, is less of a pessimist, but says “you have to assume we don’t immediately get rid of the political uncertainty”.

Sunday brings fresh elections in Spain, after a December vote failed to produce a government. The ability of a divided Conservative party govern the UK may be in doubt.

Beyond that, even if Donald Trump does not win the US presidency in November, the political discontent which has propelled his candidacy may also feature in French and German elections next year.

However, Philip Rush, senior European Economist at Nomura, says an often forgotten consequence of a vote to remain will be the activation of the EU deal secured by David Cameron, prime minister, in February. “The first step towards illustrating Europe is not a static union,” he says.

A Remain result will also return attention to the question of what policymakers around the world do next. “It will make it easier for the Bank of Japan to do its long-awaited easing move,” says Mr Grantham, on the basis that it did not want to waste the effect of policy by acting in advance of any Brexit turmoil.

A week after the result is known will come the next big piece of US data on the state of hiring. Strong growth in employment, and a Remain bounce could return attention to when the Federal Reserve next raises interest rates.

What will be normal then, in the US and UK, may be to go back to waiting for signs of something absent for years. When it comes to the interest rate rises, which would signal growth, says Mr Rush, “ultimately, it’s when spot price and wage inflation pick up”.

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