Volatility continues as world reacts to Brexit, fashion shares still being sold

There were widespread calls for calm and words of reassurance over the weekend and early Monday following Friday’s market turmoil over the UK’s shock 52%:48% vote to exit the European Union.

And calm was needed after uncertainly and fear wiped around $2.5trn off markets across the world as a result of the vote that many predicted wrongly. The pound crashed to its lowest level in more than 30 years Friday and fell another 2.6% against the dollar early Monday.

Many in the fashion industry lined up to denounce the result with UK designers including Jonathan Anderson to Christopher Raeburn and Sibling saying they were dismayed. Karl Lagerfeld meanwhile blamed rural voters for the Leave result and said those in the cities had supported Remain.

And the French Women’s Ready-to-Wear Federation said it was concerned given that its exports to the UK have been rising in double-digits but the combined effects of rising UK inflation and a possible recession in Britain could hurt that growth.

Many fear the fallout will derail the global economy and there was even talk of a “retreat from globalisation” with Goldman Sachs predicting the UK will be pushed into recession within a year.

However, markets had recovered slightly at end of Friday with the FTSE 100 closing down 199.41 at 6,138.69 after plunging as much as 549.36 points. Asia was back up Monday morning with the Japan market showing stability.

UK Chancellor George Osborne attempted to calm markets early Monday morning saying the country is ready to face the future “from a positive position”. He said there would need to be an “adjustment” in the UK economy but said there would be no emergency budget.

Osborne said be had spoken to the Bank of England governor Mark Carney and there were “well thought through contingency plans if needed… You should not underestimate our resolve,” he said.

Sterling and stocks rallied slightly after the announcement but a raft of fashion shares that fell on Friday continued to drop, albeit less sharply. Next, Debenhams, Asos, boohoo, Marks & Spencer, Burberry and Supergroup were all either down or flat with continued volatility expected.

Despite the resolve of those in the UK government, fears remain. On Sunday International Monetary Fund managing director Christine Lagarde warned of further market and economic pain if UK and European policy makers don’t quickly offer investors certainty about the new state of their relationship. The extent of the economic and market fallout “will depend on the level of certainty or uncertainty” officials can give as they negotiate a new political, trade and economic relationship. Lagarde said she has encouraged officials “to proceed in the most efficient, productive way in order to reduce uncertainty.”

But with so many questions remaining, both the UK’s two leading politic parties in leadership turmoil and the EU facing political and economic contagion risks, the ongoing uncertainly will see markets remaining unstable for this week at the very least.

Analysts, who were already worried about the outlook for the retail sector as consumer confidence was fragile even before the Brexit vote, warned that the result could impact fashion and luxury goods firms at home and in Europe, given the drop in the value of the pound against the euro and dollar. They also said prices will inevitably rise.

Some analysts predicted the price of clothing, shipped in from Asia and usually bought using dollars, could rise as much as 10%. But nothing should happen too fast because goods are bought in advance and most retailers take out insurance to protect against currency fluctuations. Changes will be felt by late 2016 at the earliest.

Although there was still no comment from major UK clothing retailers over the weekend, at least Lord Wolfson, the chief executive of Next and a major ‘Vote Leave’ supporter, stepped forward.

He said the fall in value of pound will increase sourcing costs for retailers who import goods to the UK and clothing prices could rise next year as the impact of Brexit boosts inflation.