Sunday, 26 June 2016

EU: What Next?

 
Whilst the word 'historic' has rarely been used so frequently over the weekend, it is clear that Friday will be one of those significant days in all our lives that we will never forget. This is as close to a revolution as we've experienced in my lifetime. And it's only just begun.
 
The economic impact will be far reaching and there will be key areas to watch:
 
Exchange Rate
The pound has already taken a battering and the value against major currencies is a true indication of foreign confidence in the UK. The value of sterling against the dollar reaching its lowest level since 1985 tells you all you need to know and will have a huge impact on UK imports / exports. As oil is bought in dollars, expect to be hit at the petrol station soon.
 
Investment Markets
Share and bond markets are also a good indicator of confidence in an economy. Clearly with political and economic uncertainty as a result of leaving the EU, investment markets are likely to be volatile and there could be more panicking to come. 
 
Foreign Investment
Leaving the EU is hardly an invitation for foreign investment into the UK. In fact, it makes little sense to invest in the UK with so much uncertainty over the next 2 - 3 years. This will have a significant impact to many UK businesses. In addition, it wouldn't be a surprise to see multi-national companies move their UK operations to a more stable country.
 
Bank of England
It is clear from the banking collapse that the Bank of England will have a significant role to play. Their decision making will determine whether our exit can be orderly or if it will be hugely volatile / panicky. A key short term aim over the next 18 months is to take appropriate actions to avoid the UK going into recession. Expect interest rates to go to 0% and significant funds being made available to prop up the banks again.
 
Housing Market
A measure of consumer confidence in the UK has always been the housing market. When the housing market is moving and prices rising, the confidence this brings sees consumers spend. However, when there is economic uncertainty, the housing market dries up, prices start to fall and we stop spending generally. The UK economy is very dependent upon consumer spending and a slowdown would escalate a recession.
 
So that's the economic outlook. However, it is the political legacy of the vote result that 'amuses' me the most. Last year we democratically elected our Prime Minister. Last week we democratically decided to leave the EU. However, the byproduct from Friday is that we will have a new Prime Minister by Autumn who will not be democratically selected and instead will be chosen by Tory back slappers. The new non-democratically selected Prime Minister will then serve for a longer period than the democratically elected one. An undemocratic democracy......who'd have thought it!
 
The fallout will be far reaching and I fear for the many losers of the vote decision. Let's hope that a political leader of worth is chosen that can lead us through the minefield of leaving the EU. 

1 comment:

  1. Steve, it seems to me there are no worthy political leaders.

    ReplyDelete