Sitting down to watch the rugby with a pint and a few friends, is one of life’s easy pleasures. Being interrupted at half time with “what do you think Brexit’s impact on investments will be” is like teeth grinding.
It’s a question hot on people’s lips, as well as the impact on their financial lives and well-being.
Set aside all our prejudices here, this is just about the numbers staring us in the face.
Certainty is everything. Every time a move toward an agreement is made, sterling increases in value, even despite the fluffy words used, like the pound rising on the back of “an agreement that pledges an ambitious, broad, deep and flexible partnership” (after the EU and UK agree a draft declaration).
Equally fluffy is the agreement over fishing, which states “parties will use their best endeavors to conclude and ratify” an agreement on waters by July 2020.
They may as well have said they will give it a whack!
Before we all reach to breathe into our brown paper bags again, what might it all mean?
Undoubtedly, businesses, clients and investors all feel out of control. When politicians don’t appear to have the slightest inkling, knowing whether your flight will be grounded on March 30th is a real concern.
For the UK stock market, Brexit has been a bonus. Most earnings in the FTSE100 are from overseas and when concerted back into a weakened sterling provide a very healthy uplift to prices.
For UK tourist providers it’s also been a great outcome, as, with a weakened sterling, foreign holidays are more expensive and staying in your own currency saves a fortune.
Remember sterling nosedived from 144 to 107cents, meaning a straight forward 25.69% hike in your prices. Arriving on the continent, if our beer or wine cost €4.50, converted back, using the rate before the lead up to Brexit, it was £3.12.
At the low point of negotiations, sterling’s plummet meant a new converted price of £4.17, just because of a currency fluctuation. And now you have to buy accommodation.
Theresa May will shortly publish an assessment on the long term impact of the UK staying in the EU versus a no deal Brexit. All post Brexit scenarios are expected to have negative consequences. Great.
The Bank of England will then post forecasts about the short term impact on the economy which will be upbeat. (Mr. Carney supports Theresa May’s Brexit deal by the way).
Undoubtedly, a withdrawal agreement will settle businesses and create some certainty, although Theresa May is a long way from pushing this through.
In its absence you have craziness: Can I use my EHIC card travelling abroad, or do I now have to buy travel insurance which will be ramped in price; grounded planes because of the EU open
skies agreement; pensions to overseas pensioners not receiving annual inflation rises, as they are only offered if a pensioner is in an EEA country or one with a reciprocal agreement with the UK; or even the end of pass porting arrangements which blocks private pension companies from paying pensions to retired ex pats living in the EU.
I could run that list for a while. Suffice to say, a smooth transition is required, if it happens at all.
Trying to second guess what happens with the economy relates to second guessing what happens to Theresa May’s bill. Straight through on first vote, sterling increases in value and eases the impact on inflation and interest rate rises.
Messy votes of no confidence, or new elections would nail sterling and the economy.
A second referendum, my outside bet, would rally sterling as above. You pick!
At the moment, it’s hard to believe in investing in sterling, so investors naturally protect themselves by dumping it and buying Yen and the dollar.
The UK stock market and sterling are all under loved now, as fund groups have stayed clear of investing there.
A second referendum, and a successful one to stay, would undoubtedly have the most immediate positive impact on the market, particularly as investors looking for bargains would return to that cloudy investment market that is the UK.
About the author
Peter McGahan is Chief Executive of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.
For more information, please call 01872 222422 or visit us on WWFP.net.Last modified: June 10, 2021