Post-Brexit bounceback may be fuelled by likely cut to interest rates

Pound has also stabilised as it moves away from 31-year low

Blue-chip firms today recovered all the losses they suffered in the wake of the Brexit vote after traders were buoyed by rumours interest rates could be cut.

The FTSE 100 closed up 3.6 per cent to 6,360 points - beating the 6,337 two-month high on the eve of the EU referendum.

Experts said today that the post-Brexit bounceback may be fuelled by expectations that the Bank of England will cut interest rates in August.

For seven years it has been at 0.5 per cent but could be slashed further towards zero to stabilise the economy.

There has also been a boost for sterling, which is up 1.3 per cent to $1.35, just days after the pound hit its lowest level since 1985.

Buoyed: Traders have seen the markets swell again as the FTSE and pound rose again with some suggesting that they are betting on the Bank of England cutting interest rates

Boost: The FTSE 100 has jumped 3.6per cent - around 220 points - and has now passed pre-Brexit vote levels

Good news: There has been a boost for sterling, which is up 1.3% to $1.35, just days after the pound hit its lowest level since 1985

The FTSE 250 - considered a barometer for the British economy - was also up 500 points to 16,002 when markets closed, back above its year-low in February.

But one ominous sign for the economy came from telecoms giant Vodafone, which announced it could move its headquarters out of Britain because of Brexit.

The group - one of the UK's largest companies - said its decision would depend on whether the outcome of negotiations to quit the EU restricts free 'movement of people, capital and goods'.

Meanwhile, banks Goldman Sachs and Morgan Stanley were forced to quash rumours that they are drawing up plans to move their London banking operations to Frankfurt.

Britain will refuse to sign a free trade deal with the EU unless it includes curbs on free movement, European leaders were told last night.

In his final Brussels summit, David Cameron warned his EU counterparts that nothing less would be acceptable to the British public after a decisive referendum result.

He told them it was clear that the UK had voted for Brexit because the public thought immigration was out of control.

The Prime Minister's intervention – less than a week after the historic vote to Leave – blamed Britain's departure on Angela Merkel and other foreign leaders who refused to give him any worthwhile reforms on immigration.

But it also had huge ramifications for the Tory leadership battle.

The field of candidates – many of whom voted to remain in the EU, and preserve unfettered free movement – will now come under pressure to follow Mr Cameron's belated lead that Britain must take back control of its borders.

The PM today brushed off a demand from the Scottish National Party's leader in Westminster, Angus Robertson, to assist Scotland in its efforts to remain a part of the EU.

First Minister Nicola Sturgeon was in Brussels holding meetings with European Commission President Jean-Claude Juncker and European Parliament president Martin Schulz about Scotland's future, after an overwhelming Remain vote north of the border.

But Mr Cameron said that 'the membership of the UK is a UK membership and that's where we should take our negotiating stance'.

It was in Scotland's best interest, as well as the interest of the UK as a whole, to negotiate 'the closest possible relationship' with the remaining EU following withdrawal, he said.

Yesterday, Boris Johnson made clear to the Tory right that he would end EU free movement. He had been accused of backsliding after suggesting that immigration was not the main reason why people voted Leave.

Theresa May is also expected to confirm her commitment to curbing free movement and outsider Stephen Crabb has become the first senior Tory to launch a campaign for the party leadership - and the keys to Number 10 - by vowing to make curbing immigration a 'red line' in Brexit negotiations.

FTSE 250: The FTSE 250 has also enjoyed a big jump as it slowly rose from its post-Brexit vote low

The market first had a major rebound yesterday as business leaders lined up to back Britain following the referendum result.

The FTSE 100 index rose 2.64 per cent – recovering £41billion of the value UK blue-chip firms lost immediately after the vote.

Michael Hewson, chief market analyst at CMC Markets, said: 'With no likelihood of Article 50 of the Lisbon Treaty getting triggered any time soon it seems that the status quo isn't likely to change in the short term.

'Whilst that doesn't remove the uncertainty with respect to the eventual outcome it also means that markets are going to have plenty of time to settle into their new found reality and equilibrium.'

US President Barack Obama warned against 'hysteria' in the wake of last week's backing for Brexit – saying little will change.

But George Osborne threatened that tax rises and spending cuts will be needed within months, as he bitterly defended his Project Fear campaign. The Chancellor claimed it was 'nonsensical' for Leave campaigners to argue he should have had a full plan for implementing our departure from the EU.

The stock market recovered after falling 5.62 per cent in the two days following the vote. Sterling was also recovering following a heavy sell-off on Friday and Monday, as senior City executives called for calm. One FTSE 250 chief executive hit out at the 'enormous stupidity' of scare stories peddled by the Treasury and other institutions such as the International Monetary Fund before the vote.

The pound, which fell from a high of $1.5018 on Thursday before the result to a 31-year low of $1.3122 on Monday, climbed back above $1.34 yesterday. The FTSE 100 index is down less than 2 per cent since the start of the year and has gained more than 10 per cent since its 2016 low in February.

The bounce back on the markets came as politicians and business leaders sought to reassure workers and shareholders. President Obama said: 'There's been a little bit of hysteria post-Brexit vote, as if somehow Nato's gone, the trans-Atlantic alliance is dissolving, and every country is rushing off to its own corner. That's not what's happening.'

In his final Brussels summit, David Cameron warned his EU counterparts that nothing less would be acceptable to the British public after a decisive referendum result

Rivals: Boris Johnson and Theresa May are to fight it out to be the next Prime Minister and both are said to want curbs on free movement

Stephen Crabb stressed his working class roots as he took a series of swipes at Eton-educated Boris Johnson during his campaign launch today

Business Secretary Sajid Javid declared Britain is 'open for business'. He said officials were working to reassure potential investors that the UK economy would not be knocked off course.

Mr Javid also revealed Chinese telecoms giant Huawei has confirmed it will press ahead with a £1.3billion investment in the UK.

Good news at last: George Osborne, pictured yesterday, will be pleased as the markets rallied for the first time since the Brexit vote

After talks with business leaders in London yesterday, Mr Javid said their 'biggest issue' had been to ensure access to the EU's single market continues. 'My number one priority will be to ensure just that in the negotiations to come,' he added. Simon Wolfson, chief executive of Next, said Brexit gave 'the opportunity to reform our economy and forge a healthy, outward-looking relationship with the rest of the world'. He added: 'If we can put the vitriol of the past few months behind us, and adopt the right policies, there will be few countries better placed to prosper.'

Martin Gilbert of Aberdeen Asset Management, which looks after nearly £300billion of investors' money, urged savers to sit tight, adding: 'I know that sounds counterintuitive but the key is not to panic, not sell at the bottom or near the bottom. The best thing is to just sit on your hands and wait for this to pass over.'

Rolls-Royce said it 'remains committed to the UK … The UK's decision will have no immediate impact on our day-to-day business. The medium and long-term effect will depend upon the relationships that are established between the UK, the EU and the rest of the world.'

Legal & General said its business has been 'substantially unaffected' by the result of the referendum.

TalkTalk chief Dido Harding said there was no need for 'doom and gloom' over Brexit, adding: 'What doesn't kill you makes you stronger.' Writing to Royal Bank of Scotland's 90,000 staff, chief executive Ross McEwan said: 'Our view as a bank is that the UK remains a large, well-developed economy with good long-term prospects.'

But Mr Osborne insisted his stark forecasts about the economic impact of Brexit 'have started to be borne out'. He told BBC Radio 4's Today there would be a 'prolonged period of economic adjustment' and again warned of a harsh emergency budget.