The Impact Of Brexit On The UK

Our view:

Brexit is a terrible outcome for investors and businesses. Years of uncertainty, immediate political instability and the lack of the clear plan for the UK’s exit has further compounded the situation.

While the UK may well recover in the decades ahead there is no doubt that investment and growth will take sharp declines which will cost jobs and impede social mobility and infrastructure investment.

What we advise:

Investment in safety assets such as gold and government bonds are likely to see positive returns in the months ahead. The world is engulfed in uncertainty and capital is highly likely to seek safety until the full impact of Brexit is known.

 

We have explained the effect of Brexit against key areas of concern for investors

Capital Investment:

The call for the referendum in 2013 reduced investment in the UK and the fallout from the leave vote will further impede domestic and foreign investment due to uncertainty.

Banking:

UK investment banks hold prized EU passports that allow them to act as the global financial bridge for foreign investment into Europe. Many European countries envy the City of London and are likely to do what they can to weaken it to attract investment into their countries.

Trade:

Losing free access to the European market will spook businesses and see many international firms relocate some or all operations from the UK to an EU member state.

Pensions and Savings:

Depending on the strategy of the fund some citizens may see savings and pension pots shrink. UK-based funds may have higher costs accessing the European market if the UK exits the single market which will reduce the returns for investments.

Asset Classes:

A flight to safety is more than likely with equities and currencies seeing capital move away to safer options like gold and government bonds. The FTSE 100 and Sterling are likely to see months of decline as the full impact of an exit vote unravels.

UK Government:

The Moodys ratings agency has downgraded the outlook for the UK and it is likely as the full impact of the exit is realised that the UK will lose is AAA rating. This will increase the costs of borrowing on international markets for the UK government which likely means the government will have to embark on austerity to reduce spending costs in response to an increase in the cost of borrowing.

United Kingdom Unity:

Scotland is seeking an independence referendum while Ireland has declared interest in the reunification of the north. While is isn’t likely that the UK will break apart in the immediate future this cannot be written off for the longer term future especially in the case of Scotland.

Global Outlook

The effect of Brexit is global and the world was already in a period of declining growth. Global growth will likely decline for the coming years as the EU, UK and the rest of the world come to terms with the impact of the exit.