In the days after the Brexit vote, the chaos predicted by some did seem to manifest itself. Markets fell. Bonds soared. Sterling tanked. Retail property managers closed their funds to redemptions. However, analysing our internal credit and debit card data, the days after 23rd June don’t produce even a mild blip of instability on the chart. We kept spending. And while businesses and consumers in the UK talked a pessimistic game, more recent data points have been positive.
Bond yields are still low throughout much of the developed world - in September, European firms Henkel and Sanofi became the first corporates to issue fixed income securities at a negative yield - and sterling remains around 15% weaker than before the vote. But property funds are re-opening and equities have recovered. Car sales in August were robust and property prices – a vital indicator of how consumers feel and spend – have steadied.
"We must not forget that other nations will not stand still during our divorce"
Is this a ‘Brexit bounce’? It is certainly better than the Bank of England expected, making it less likely they will cut rates further. A decent housing market rebound (as indicated in surveys by the Royal Institute of Chartered Surveyors) would take another rate cut off the table.
We will not be able to judge Brexit’s impact for many years and its success, or otherwise, will not be a simple hypothesis to backtest. What happens in Europe matters –upcoming elections in France and Germany will tilt the balance and timing of the negotiation of our exit from the EU. What happens to the borders with Ireland and at the Channel will have implications too.
"We are an island affected by so much beyond our shores"
What makes Britain strong is its ability to be outward-looking, and to attract and retain talent in important, innovative areas such as science, specialist services and industries, the arts and technology. Anecdotal evidence from university research departments indicates British scientists being excluded from new projects. Martin Roth, the Director of the V&A in London, said he resigned because he felt “disillusioned by Brexit”. We must not forget that other nations will not stand still during our divorce – and they will be eager to pounce on talent in Britain. Our weak currency also makes some of our companies attractive to overseas acquirers.
We are an island affected by so much beyond our shores - the US elections, for example, and a Chinese economy that is evolving into country of 1.2 billion consumers. For the first time in several years, economists are predicting global synchronised growth in 2017. That will clearly help the UK.
For investments, low rates mean banks will struggle to earn a margin, and companies with large pension funds face difficult questions. Strong companies with robust balance sheets, a globally diversified customer base and predictable dividends will be attractive to investors seeking returns higher than bond yields or interest on bank balances.
09 Jul 2019In this issue of Outlook we examine the trade war between the USA and China, discuss the future role of the dollar, look at how an ageing population will change the way we work, and ask if it's still makes sense to own bonds.Read more »
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