In a referendum on the 23 June 2016, a narrow majority of the United Kingdom voted to leave the European Union (51.9% to 48.1%). The immediate impact of the decision rocked global markets and saw the value of the British pound plummet causing huge economic uncertainty. Since this date, talks between Britain and the EU have advanced slowly, with details of the new relationship still to be formally worked out.
Some of the most complex issues being negotiated by the current British Prime Minister, Theresa May, and the EU centre around the single market, British expats, and immigration. These are just a few of many issues around business, security and human rights which are being discussed as part of Article 50 (a plan which outlines the conditions of leaving the European Union).
The British economy has defied predictions of an immediate economic crisis, and the pound has made a cautious recovery against the US dollar, though it remains 15% down against the euro. Neither 2016 or 2017 saw economic stagnation of negative growth. However, there are still concerns that leaving the EU will have a destabilising effect.
As one of the UK’s leading investment managers, LGIM offers knowledge and experience that can bring real benefit to investors looking to understand the impact of Brexit on both British and global economics, policy and politics.
Our Asset Allocation team includes dedicated and accomplished European and Global economists, whose focus is to assess the macroeconomic environment across the developed world. This includes researching government policy, emerging political trends, as well as the outlook for economic growth and inflation. Our economists then work with our team of strategists and portfolio managers to translate their views into what this means at a portfolio level.
Following the EU referendum, financial markets initially expected the worst, with the weakness of the pound the clearest indication of deteriorating sentiment. And yet, many saw the depreciation as an opportunity for the economy to rebalance away from consumer spending and towards more trade. With this in mind, how successful has the UK been?
Middle Eastern investors have been cautious on risk for a while. I believe that if markets remain relatively calm, many will be tempted to deploy more cash.
While our forecasts for 2018 follow a similar trajectory to 2017, a healthy dose of potential risk lurks in the shadows. For a different take on the Asset Allocation team’s outlook for next year, here’s an insight into the regular debate at our team meetings in the first of a three-part series focusing on our discussions on each of the three Ps of politics, policy and (market) peaks.