In the third of his Brexit-in-London series, Dynamique chief, Guy Dobson, finds the UK in generally chipper spirits despite the uncertainty…
Post-Brexit politics in the UK have made for exciting viewing.
The quickly-installed replacement Prime Minister, Theresa May, is already earning plaudits for sticking to her guns on Europe while refurbishing the Cabinet (including the controversial appointment of Boris Johnson as Foreign Secretary).
At the same time, Labour leader Jeremy Corbyn is on the ropes but fails ‘in God’s name to go’ – to paraphrase Oliver Cromwell’s famous 1653 demand to the-then moribund English ‘rump parliament’. In a perverse way Corbyn may well survive the leadership challenge, but time is not on his side and the country urgently needs a strong opposition.
Markets have bounced back from their post Brexit low. Sterling remains around US$1.33: extremely favourable for trade. Britain has been able to do what Euro countries would love to do that is to devalue their currencies and get some inflation going.
Brexit was a near as one can get to a Revolution or Civil War in a country that hasn’t experienced either for centuries.
A number of people are taking a constitutional case to the High Court over triggering the infamous Article 50, which sets in train an irrevocable path to EU departure. The case is most likely a waste of time as it may well be thrown out by the court as being politically-motivated.
Meanwhile, French President Francoise Hollande has been making noises that trade settlement systems and Euro clearing should move to France now that UK is leaving the EU. Senior bankers, however, have indicated this will never happen as moving operations to Paris would be enormously costly in terms of systems, risk and, fundamentally, people don’t trust the French not to renege on any deals on the grounds of future political expediency.
Banks and fund managers with clients in the EU will still have to comply with Brussels-based regulation for the time being. Maintaining fund ‘passport’ rights – the ability to sell products cross-border under one’s home regulatory umbrella – is critical to some, typically larger firms, but not to all.
Smaller banks with operations within the UK before Brexit had to comply on the same terms as larger banks, but now thanks to vote to leave will enjoy a reduced level of compliance more applicable to their sector.
As the UK government enters into informal Brexit talks with EU leaders directly, much against the wishes of the EU Commission, the Brussels bureaucracy is becoming to look rather impotent.
Article 50 may well not be triggered before 2017 or delayed until after the French and other EU country elections. There is no doubt that cracks in the Euro project highlighted by Brexit will haunt markets for some time to come despite the European Central Bank (ECB) talking down the impact.
For example, the brewing Italian banking crisis is now a ECB problem and ultimately a German taxpayer cost. The UK, the third largest net contributor is unlikely to participate in any potential rescue.
One of the benefits (although perhaps not from the seller’s perspective) of Brexit is that the top end of the London housing market has slowed sharply. For example, some London property owners have been forced to accept considerable haircuts to get deals away.
Although it is still too early to say what the real wider business impact will be until August 2016 statistics are released.
On balance, it would appear that Brexit may well be just the tonic for the UK economy to get it moving again in the right direction.
For instance, we are also beginning to see new thinking on trade deals. Firms are taking the view that they can strike better deals themselves directly between counterparties irrespective of any government-imposed tariffs by structuring deals in a more creative manner.
Markets have become less predictable than ever.
Many professionals are taking little notice of IMF, OECD and local economists’ forecasts. They have been proved wrong so many times.
So now we wait. Taking advantage of short-term corrections and staying put with a well-diversified fund with quality financial instruments seems to be a preferred option.
Dynamique offers financial industry performance risk solutions and retail investor CPD programs with offices in NZ and the UK. Guy Dobson, Dynamique director, is currently in the UK