Share Prices & Company Research

Press Release

05 April 2018

Looking beyond Brexit

The countdown to 29th March 2019 has begun. As the UK prepares to leave the European Union, James Andrews, Director – Head of Investment Management, looks at the UK economy’s post-Brexit future.

As the clock ticks over, and we begin the countdown to 29th March 2019, when the UK will no longer be in the EU, it is worth a moment of pause and reflection as to where we stand and what the post-Brexit prospects look like for the UK economy and markets.

Firstly, it is worth highlighting that following the transition talks, while we will be out of the EU this time next year, not much will change until the end of 2020 due to the agreed period of transition. The only major change in that time will be the lack of any say or part to play in the decision-making process.
So where are we today?

In the UK markets, the FTSE 100 initially saw a strong rally from the big multi-nationals such as Unilever and Compass Group following the referendum, as the fall in the Pound saw an increase in value of those overseas earnings for UK investors post-the vote. However, this has now begun to unwind as the Pound has regained some poise, and finds itself around 5% less than it was immediately before the referendum rather than the circa 15% fall we saw early on. The FTSE 100 is, as I write, around 7100, having been as high as 7778, but is still fairly strongly ahead of the circa 6200 level prior to the vote.

In the real economy, while the fall in the Pound has helped our exporters, the UK remains a net importer and has suffered from the currency depreciation. The latest Office for National Statistics (ONS) data saw the UK trade deficit – the difference between what Britain buys from abroad and sells overseas – rise to a larger-than-expected £12.3bn deficit in December.

The Pound’s fall has also seen inflation up more than 1 percentage point above the Bank of England’s 2% target. However, the most recent reading has seen the consumer price index CPI come back to 2.7%, while wages are now up 2.6%, offering the potential for real earnings growth for the first time post the referendum. That would offer a welcome respite to both domestic finances and retailers, although the recent extreme weather will likely see further pain before the respite comes through on the high street.

So what next?

The recent bout of volatility looks likely to remain for the foreseeable, as Trump’s trade wars exacerbate trade concerns around Brexit negotiations. Also, the latest estimate from the Office for Budget Responsibility suggests there will be no savings from Brexit for the next five years for the UK, as the final Brexit exit costs look likely to come in at circa £37.1bn - something that had to be agreed before the EU would move forward on the transition talks.

While hopes remain that a ‘Canada plus’ free trade model can be negotiated, the need for no hard Irish border makes that very difficult. Instead some have mooted a Jersey type model where we agree to being a rule taker on goods and indefinitely put off exiting the customs union. This would avoid punitive trade tariffs and be taken well by markets, but perhaps not those who prefer a hard Brexit.

It is fair to say that the future outcome remains difficult to call, and sees our focus remain on structuring investment portfolios to be all-weather and balanced affairs, focused on the long term rather than trying to predict the short term.

Investments and income arising from them can fall as well as rise in value and you may lose some or all of the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance.
Looking beyond Brexit
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