Brexit shock unlikely to lead to crisis

 

It is far too soon to determine what will be the lasting impact of Brexit on the UK economy and markets, but it is clear the referendum vote has caused major uncertainty. And we all know the one thing investment markets dislike is uncertainty.

There is no doubt central banks will continue to do 'whatever it takes' to provide support to the global economy. What this means for the UK is likely interest rates cuts and/or QE from the Bank of England to provide assistance to the economy and support markets as the UK contends with this unexpected shock.

While we believe the Brexit outcome may create a bandwagon of pressure to reform the EU, we think it is unlikely to lead to the full-scale collapse of the European Union. It is clearly a ‘shock’, but not a ‘crisis’.

At this point, despite many varied arguments, we wonder if Merkel’s apparent steadying influence in saying the UK should take its time and determine if this is truly in the country's best interests could provide some sort of scope for the UK to negotiate a better outcome rather than a full exit? It is clear a complete exit of the UK would be as detrimental for Europe, if not worse

Perhaps a compromise position, akin to the model currently adopted Norway, which still allows access to goods and services (including financial services) and freedom of movement, could be the 'middle ground' solution for all? There is little doubt people here in the UK will still drink French wine!

Therefore, while the referendum vote has created uncertainty, we believe it important to stay measured and 'not let our hearts rule our heads'.

 

Past performance is not a guide to future performance. The value of investments can fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate. Currency fluctuations can also affect performance.

This information is for professional advisers only. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and are subject to change at any time without notice. The contents of this article are not intended as investment advice. The Canada Life Investments blog page features images licensed from Getty Images International. These images shall not be downloaded, republished, retransmitted, reproduced or otherwise used in any way. Aside from the above, and unless otherwise stated, Canada Life retains copyright in and/or has a right to use all contents of this website (including text and graphics) and such contents shall not be copied, distributed, extracted or modified without the express prior written consent of Canada Life unless for private, non-commercial use.

Nigel Kennett

Nigel Kennett

Senior Fund Manager, UK Equities

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