Britain has now decided to leave the European Union and David Cameron is to stand down. What a fast paced few days it has been.
First thing on Friday morning it looked pretty bleak with newspapers and the media calling it ‘Black Friday’ and ‘The worst crash since 1987’. At the time of writing this is not the case. The FTSE 100 has fallen by 4.25% and the FTSE All share 4.93%. Yes this a loss and one that we would have preferred to not have occurred but nevertheless it is not a momentous drop that was predicted and we have seen a very quick recovery since the market open. The FTSE 100 is at 6,069.95 points. It was last as low as this on June 17th 2016. Last week.
The last couple of weeks has seen a rise in UK equities and Sterling due to the shift in expectation that Britain would vote to remain within the EU. At around 3 AM this morning, when the results of the referendum started coming in, the sentiment of the world economy changed and the first sign of this was with Sterling being traded cheaply against the Dollar. This then followed by Asian Markets falling by around 6%, By 8.07 AM the FTSE 100 had fallen by 8%, and the FTSE 250 by 11.7%. These markets have now become more contained and less likely to free fall. The early drop was to be expected.
What does this mean to our economy in the short term?
We have reviewed the economic reaction of three of our Investment partners this morning and believe that in the short term we may see our pockets being squeezed ever so slightly as inflation will inevitably rise with sterling falling as we, as an economy, rely heavily on foreign imports. We would not expect wages to rise to cover this shortfall. This could also affect lending, especially mortgages as the big banks will not want to take the risks of lending to people with less money, which could then lead to a steadying or fall in residential house prices.
Foreign direct investment could also fall in the shorter term, but companies and individuals are not in Britain to take advantage of the EU, they are here to take advantage of the UK economy and to gain a foothold in the fifth largest economy in the world.
It is much too soon to start making predictions about the long term future of the economy, but we will keep you informed as soon as any new news occurs which could have a significant impact on your investments.
The Bank of England has announced that it has £250 Billion in readily realisable money to pump into the economy if the UK economy needs it, as well as the option to reduce interest rates as low as 0%. The European Central Bank has also stated that it will support the UK economy so there are security measures available to use, which should help to stabilise the economy and the equity markets.
David Cameron stepping down is seen as much as a surprise as the result itself, however, this will allow negotiations between Britain and the EU to start with a fresh leader and a clear direction to ensure that we get the best possible deal.
Information courteous of Astute Wealth Management.