Monthly Archives: May 2016

The Impact of the EU Referendum – Part 3

Posted on May 18, 2016 by - Uncategorized

In this weeks instalment, we will consider the impact that the EU referendum might have on foreign investment in the UK and our much loved Pound Sterling.

Many multi-national companies choose to base their operations (or a significant part of them) in the UK. This can be for a number of reasons, but for  many the prospect of a listing on the UK stock market, access to the finance markets of London and the perception of having a base in one of the major ‘global’ cities will all have an influence.

There is some evidence that the EU Referendum is already having an impact here, with many foreign companies holding off on further investment into the UK until after the result of the referendum. This suggests that these companies may not be so keen to invest in a UK that is not a member of the EU.

While trade and capital treaties would no doubt be re-negotiated over time, one of the few areas where most commentators seem to agree is that if the UK did decide to leave the EU, there would most likely be a fall in investment in the UK, in the short term at least.

There will also undoubtedly be an impact on sterling as a currency, and we have already started to see this with sterling losing value when compared to some other global currencies in the run up to the referendum. While this is good news for businesses who export goods and services (as it makes our goods cheaper to buy overseas), in general terms, this would be seen as a negative by most people whose only interaction with the currency markets is to fund their summer holiday.

Finally, some have suggested that the property market in London could be adversely impacted by the UK leaving the EU with some foreign buyers pulling out or delaying purchases. However, it is more than likely that this would have the greatest impact on the very top end of the London market.

 

The Impact of the EU Referendum – Part 2

Posted on May 11, 2016 by - Uncategorized

Following on from our last post, today we will be considering the possible impact of the EU referendum on UK trade and manufacturing businesses.

Like the majority of the issues surrounding the debate, there does not seem to be a clear right or wrong answer here, with a number of well respected bodies making seemingly contradictory arguments.

Possibly the biggest issue at play is that the UK exports just over 60% of it’s goods and services to the EU, so any change here will undoubtedly have an economic impact. In the event that we decide to leave the EU, we would have to re-negotiate trade agreements with several different parties and nations, most notably the EU. The two campaigns seems to be at loggerheads over how long this might take, with pro-leave organisations suggesting that these deals could be wrapped up in less than 6 months, while remain campaigners have suggested trade deals could take a decade or more to negotiate with some parties.

Some have suggested that being outside of the EU may allow the UK more flexibility to negotiate trade deals with emerging economies such as China and India, which will undoubtedly make up a larger portion of global consumption in the future.

Finally, the imposition of so called ‘tariffs’ on goods that we export to other EU countries could make UK products less attractive to foreign buyers if we decide to leave the EU. The US has recently imposed ‘tariffs’ of up to 500% on steel exports from China for example and we could potentially see similar punitive charges applied to our own goods by other nations.

Like all of the debate surrounding the EU referendum, there does not seem to be a clear argument either way. Some parties will argue strongly in one direction, with the opposing campaign presenting an almost completely contradictory argument. By definition, only one of them can be right.

The cynic in me would suggest that no-one really knows the full impact of an EU exit on trade and we would simply have to ‘wait and see’ how things develop over time.

 

The Impact of the EU Referendum – Part 1

Posted on May 4, 2016 by - Investments, News

The Buckingham Gate blog is back after a short hiatus over the busy tax year end period. Thank you to all of our clients both old and new for making 2016 our best year yet.

Many clients have enquired about the possible impact of a UK exit from the EU (or Brexit) and in this series of blog posts, we will explore some of the issues and the potential impacts on the UK economy and the markets.

Please note that while we have tried to take views from the most unbiased sources possible, it does seem that almost everyone has some ‘skin in the game’ when it comes to the EU Referendum, so it is important to filter out facts from opinions.

Given the sheer size and scale of the issues surrounding the UK’s membership of the EU, I’m not convinced that anyone really knows all the answers, however this next few weeks of blog posts will be dedicated to some of the key questions.

We start with Financial Services and the City…

We all know that London is one of the world’s financial centres and many have made the argument that this is because we offer a ‘gateway’ into Europe. Some have pointed out that London on it’s own as a financial centre may not be as strong as London within the larger EU.

In the event of an EU exit, if the latter argument is to be believed, then this could cause a lower level of investment into financial services in the UK economy and whether you like them or loathe them, banks and financial services businesses do make up a large part of the UK economy (and the UK stock market).

As I suggested earlier, most commentators on the EU referendum have something to lose or gain based on the outcome, so I am keeping my ear to the ground for independent views. The Governor of the Bank of England, Mark Carney, has, in my view, one of the most relevant opinions on the debate and he has cautioned against a UK exit from an economic perspective.

On the other side of the coin, some have argued that if we were able to break free from some of the bureaucracy and red tape that come with the EU, the City could become even more competitive on the global stage.

With regard to stock markets, there is no doubt that the lead up to the referendum and the outcome itself will move markets. It is fair to say that ‘the markets’ would prefer if we remained in the EU as this is a known quantity, so I would suggest that the risk is on the downside if we do decide to leave. There could well be a ‘relief rally’ if we do remain in the EU, however this may not be quite so pronounced as the falls if we leave.

The issue is, with recent polls at precisely 50/50 (Source: whatukthinks.org), it really is too close to call. As such, we will not be making any extreme movements in our portfolios on the basis of the EU referendum. Whatever the outcome, we remain confident that any impact on the markets will be relatively short term when considering investment time horizons of 5 – 10 years or longer.