BREXIT – where are we now?

Hollywood screenwriter William Goldman’s famous dictum that “Nobody knows anything” absolutely applies to Brexit. During the referendum campaign, the pro-Remain camp warned that markets would crash if we voted to leave the EU, but instead the FTSE 100 is up nearly 7% at time of writing. It warned the pound would plunge with perilous consequences, but sterling weakness is now almost universally seen as a good thing. Former Chancellor George Osborne got it spectacularly wrong by threatening an emergency budget if we voted to Leave, working on the misguided assumption that he would be in a position to deliver one. Boris Johnson and Michael Gove also misjudged badly but the Tory leadership scrap already feels like ancient history, as new Prime Minister Theresa May and Chancellor Philip Hammond smoothly take command.

The lack of post-Brexit data means that Goldman’s dictum continues to hold good: nobody knows anything, but that is gradually set to change as the numbers start to trickle through.
The one thing we know with any certainty is that the shock referendum result has smashed confidence, with surveys showing the anxiety affecting purchasing managers and consumers.
Yet even these may now be misleading, as the swift appointment of May and Hammond rapidly revives confidence. The preliminary estimate of second quarter GDP surprised in a nice way at 0.6% but nobody knows what that tells us, given that the data is mostly pre-Brexit. Many analysts still expect the economy to slip into recession in the next two quarters.
Are they right? Nobody knows, as Brexit aftershocks hit the UK economy in unforeseeable ways.

The UK may have lost the last of its AAA credit ratings but that hasn’t quenched demand for government bonds, with yields plunging as prices rise. The IMF has downgraded the UK’s growth prospects slightly, but its forecasts still place us ahead of both Germany and France.
There is little sign of an exodus from the City, with major banks pledging their future to London. The property fund panic quickly calmed. It was the end of the world, then it wasn’t.
SoftBank’s massive £24 billion bid for ARM Holdings shows the UK is still open for foreign investment, while EDF is pushing ahead with the £18bn Hinkley Point C nuclear power station.

The Bank of England’s monetary policy committee is now saddling up to rescue us from a disaster that may never actually happen. Swap markets are placing a 99% chance of 0.25% rate cut in August, but this knee-jerk reaction could do as much harm as good. Further Quantative Easing may also be on the way, which may only benefit those who want to see asset prices inflated even higher. Nobody knows anything right now, so preserve us from the actions of those who think they do: especially the Bank of England. All I know is that all the “experts” got it wrong so no reason to believe they will continue to do anything but the same in the future.

As I largely predicted, Brexit has meant very little real change and that will continue to be the case. The 5th / 6th largest economy in the world – the UK – depending on which report you read, is fine without Europe, but will Europe be fine without the UK? I see that only a day or so ago, the US is now going to import British beef after a 20 year “ban”. Expect similar as time goes on. The point is, British funds could very well be “undervalued” right now, so consider investing in them now, or at least switch the direction of current investments in that direction perhaps………………

As WW3 has not happened and the Stock Market did not collapse (etc) as the “experts” suggested, I think there are some opportunities. Let me know if you need my help exploiting them

GREG POGONOWSKI
www.yourmoney-matters.net
email: greg@yourmoney-matters.com