UBS: Was der Brexit bedeutet

For the UK economy this is a significant negative uncertainty shock

For the UK the immediate consequence is a significant rise in economic uncertainty,especially as the future of trading relationships between the UK & the EU is expected toremain unclear for some time. As a result we expect a further deceleration in growth,to around zero for a number of quarters. For the Bank of England we think the sharploss of momentum will trump short-term inflationary impacts from any potential declinein sterling. We expect the MPC will cut policy rates to zero and make further assetpurchases, in the first instance of GBP 50-75bn, not later than February 2017.

CIO Note

UK voters have chosen to leave the EU. It looks likely that the "leave" campaign will have secured 52% of the vote once the final count is in, whereas the percentage for remaining in the EU may stand at 48%.

The result will likely surprise markets, since polling momentum had shifted back in favor of the "remain" campaign in the last days of campaigning. And up until voting day itself, betting markets had ascribed just a 25% chance of a UK decision to exit the EU.

What next?

There is a great deal of uncertainty ahead as questions will now be raised about the timeline and process from here. Indeed it is still far from clear that today's vote will actually lead to the UK exiting the European Union. Before we move on to the many questions facing the UK in the weeks and months ahead, it makes sense to start this note with the facts that we do know.

What "Leave" vote means for UK Technology

Generally technology should be relative beneficiaries

Given most of the UK sector has a limited UK sales exposure and generates a highproportion of USD revenues, it should prove relatively protected and actually maybenefit from short term weakness in the GBP. The knock-on economic impact isdifficult to gauge as are softer issues: ARM has discussed publicly the ease with which itrecruits talent from Europe (indeed ARM cites it has 23 EU nationalities working at itsCambridge headquarters). Other issues such as the future of EU grants for R&D withinuniversities may also impact the longer term technological capabilities of the UK.

Downside risk to FTSE 100 of 13% - LEAVE fair value is 5,500

We see the FTSE 100 at 5,500 with the Leave vote. How do we get there? Market deratesto 12x PE (from 15x) but the fall is mitigated by a boost to earnings from aweaker sterling (UBS sees GBP/USD at 1.27 and the euro/GBP trending towards 0.90).Earnings are boosted from -5% to 8% in 2016E and resilient at 8-10% in 2017E.