CBA Chief Economist, Michael Blythe comments on Britain’s landmark decision to exit the EU.

“The vote for Brexit has carried the day. But the debate about the implications for economies and financial markets is just beginning. 

While the UK will be most affected, Europe (and the rest of the world) will not emerge unscathed. Policy makers in the UK and Europe will be tied up for years trying to unravel the economic knot. 

The main argument against Brexit was the potential economic costs. These costs are difficult to estimate. But all the serious modelling work suggests the impact will be “large” and long lasting.

The direct impact of Brexit on Australia will be fairly limited, partly because of our Asian orientation. We are exposed, however, through our services trade (tourism and financial services).  The bigger threat may be from weaker commodity demand and lower commodity prices that could drag on Australian incomes.   

The expected hit to European and global growth will impact commodities. And this hit will filter through to views on the RBA as well.  At this stage, we remain comfortable with our call for the RBA cash rate to come down to 1¼%.  But that could now happen a little more quickly than the 3‑6 month timeframe we’ve been suggesting.”