The Brexit decision has put us into uncharted waters. Whether you voted Leave or Remain you’ll be keen to see financial stability re-established, but it’s not going to happen quickly. Along the road to an eventual UK departure from the EU there’ll be many pitfalls, particularly about whether it will be possible to continue with the benefits of the Single Market. Each time this appears to be going wrong it will create wobbles for equity markets and sterling, and that’s a situation we’re going to have to get used to.
The immediate reaction to the Brexit vote, in terms of the plunge in the value of sterling and loss of billions from equity markets, was an over-reaction because markets expected a Remain win. Over the following week things stabilised, and that will continue to be the pattern. As we saw the day after the vote this creates perfect conditions for speculators, with people buying good shares at low prices and making a huge profit because they were massively under-valued against their potential dividend performance.
Equally many speculators gambled successfully on the plunge and recovery in the value of sterling. As events unfold there’ll be similar big fluctuations, but probably not on the scale of events on 24th June.
When it comes to sterling, the UK economy is still relatively strong; the euro’s also been weakened by the Brexit decision, while the US dollar could be volatile over coming months as we approach the US election. A weaker pound will make agriculture more competitive on export markets, and make the UK less attractive for eurozone suppliers, particularly Ireland – which is a short-term positive from the Brexit decision.
Our savings and pensions are not in as strong a position as they were. The future of interest rates can be viewed two ways: some have suggested they’ll need to rise to boost sterling, but in reality the Bank of England will react to any weakening of the UK economy by further cutting interest rates. That could see a zero rate, which would be grim news for pensions and savings, but it’s the price that will be paid if Brexit destabilises the economy and tax take to the degree the chancellor, George Osborne, warned was likely before the referendum. For now, all talk of an increase in the base rate has evaporated.
The big question is what we, as individuals, can do about this, and the answer is not a lot. Things will settle but confidence will remain fragile in the UK economy for the foreseeable future. That future timetable is years, given it will be at least two years from when the exit button is pushed until the UK leaves the EU. In that time hundreds of issues must to be tackled and the Single Market access question is the key one for the economy.
Beyond that there are huge questions about access to overseas workers. Their involvement in the UK economy has kept it flexible and kept wages down, which is seen as positive – certainly for agriculture and the food industry.
We now face a long period of intense media scrutiny of events that will keep markets and the economy jumpy, but that became inevitable the minute Brexit won, when it became clear the Leave advocates had no plan for the economy outside the EU – mainly because they never expected to win.