Brexit: The sky won't fall, but the British pound has

British pound plunges to 31-year low as U.K. votes to leave EU 

The European flag may be flying at half mast tomorrow in the wake of the Brexit vote.

British citizens have voted to leave the European Union, according to British press – a move economists say will not likely affect Canada's trade relations with the UK, but which could push the UK into recession and further cool an already “tepid” global economy.

In a referendum June 23, the leave camp was declared the victor by major media outlets even before the vote was finalized.

Trade between Canada, the UK and the European Union is not likely to be affected much by Britain’s decision to leave the EU, say a number of Canadian economists and political scientists.

The bigger concern is that the UK may slide into recession, and an already fragile European economy will be destabilized by the loss of its second largest member, not to mention the potential loss of other “Eurosceptic” members, which could become emboldened to follow Britain out of the EU.

Even before the the final results were in, as the leave camp began to take the lead, the British pound had plunged to its lowest level since 1985, while the safe-haven Japanese Yen surged. The pound dropped from US$1.48 to US$1.33 in just five hours.

Some political scientists predict that Scotland, which narrowly voted in favour of remaining in the UK in a 2014 referendum, will almost certainly now hold another vote on independence.

And none of that can be good for the global economy.

“There will be almost no direct effect on Canada,” said James Brander, an economist at the Sauder School of Business specializing in international trade. “Very little would happen. There’s no reason why the existing trade agreements and trade structure with the European community needs to change at all.”

“It’s the knock-on the effect on Canada, including British Columbia, from an even weaker economy, recognizing it’s already weak without Brexit,” said Jock Finlayson, economist and chief policy officer for the Business Council of BC (BCBC) “Growth is pretty tepid, at about 3% per year.”

The British pound's fall will boost safer haven currencies, including the Canadian dollar, economists say.

Read the next print edition of Business in Vancouver for more detailed analysis of the Brexit vote's implications for Canada.