Next week, the Prime Minister will trigger Article 50, formerly beginning the process to extrapolate the United Kingdom from the European Union. Nine months after Britons voted to leave the EU, the market and the economy look surprisingly buoyant – we have not yet experienced the recession or stock market crash that many analysts predicted. Sterling has fallen to a record low level against most other major currencies, which has eroded consumers’ spending power overseas, but it has benefited the tourism industry, one of the key economic drivers in the UK.
A weak pound also lifted up shares of companies in the FTSE 100. This is because many of them are international companies – around 70% of the revenues of FTSE 100 companies come from overseas, paid in other currencies. As a result, the FTSE 100 has risen 25% since June 24.
The UK economy has held up relatively well as well. At the Spring Budget report by Chancellor Philip Hammond this month, the UK economic growth forecast has been upgraded from 1.4% to 2% for this year. Economic growth in 2016 was second only to Germany amongst the major advanced economies, growing faster than the US, Japan and France.
“Resilience in the economy is reflected in a strong labour market. Since 2010, the employment rate has risen from 70.2% to 74.6%, with positive news for all parts of the United Kingdom. Unemployment is at an 11-year low, with over 2.7 million more people enjoying the security and dignity of work than in 2010,” said Hammond.
However, the momentum we are enjoying now is likely to be short-lived. Morningstar hit the streets of London to find out what they thought of the impact of a Brexit vote so far.
One said that the FTSE 100 rally was no more than “an accounting effect” adding, “it’s not real”.
Brexit Makes Business More Difficult
The Government announced this week that Prime Minister Theresa May would trigger Article 50 of the Lisbon Treaty on March 29 and initiate the two-year negotiation process for leaving the European Union. For many businesses, this means uncertainty and they may see adverse effects during the negotiation process.
A man from Ireland who has business in the UK told Morningstar that because of the uncertainty in the UK market, his business is trying to recruit employees from the UK over to Ireland.
Certain financial services are preparing to move part of their operations from London to elsewhere in Europe because of Brexit. This week the US banking giant Goldman Sachs was it plans to relocate workers out of London.
While the economy remained robust, inflation accelerated to 2.3% last month, excessing the Bank of England’s target for the first time in three years, data from Office of National Statistics revealed yesterday. The rising cost of living has eroded wage growth.
“There is no room for complacency. As we prepare for our future outside the EU, we cannot rest on our past achievements. The deficit is down, but debt is still too high,” the Chancellor admitted.
