The people have spoken. The mistake was to ask. The decision is clear. Britain will leave the EU. No second referendum. No special deal. So long and thanks for all this fish, the EU reaction, finally, rid of those troublesome Brits!
Immigration has clarified the divide between the council estates of the UK and the leafy London Terraces. London voted remain, the people of Sunderland want out. Labour supporters face the brunt of the pursuit for better housing and jobs.
The pressures on the NHS, housing, social services and education are blamed on Johnny Foreigner. Austerity cuts and badly designed economic policy are really to blame. UK births were near 700,000 last year, dwarfing the inflow of East Europeans from the far frontiers of the EU.
Huge pressure on services is a function of low growth and cuts in spending. Osborne is perhaps the real villain in the piece. The threat of a punishment budget, should the people vote to leave, was as economically incoherent as it was political unwise. Osborne has delivered his last budget. He won’t make the move to the job next door.
Cameron has resigned. There goes an honest man. Boris Johnson will be Prime Minister. An opportunistic move to back the Leave campaign satisfies political ambition but betrays the interests of the young people of Britain. Our young people, European and citizens of the world, voted predominantly to “Remain”.
Great Britain or Little England ...
The mission to "Make Britain Great Again", may distil to little England and the sheep farmers of Wales. The EU will make it tough for the UK to secure a deal. No free trade without the free movement of labour and a monthly payment plan will be the minimum deal. To better, is an impossible ask on either side..
The EU leaders must see Britain punished. They cannot afford the malaise to gather momentum in the Netherlands and the dissident states of the North. The Austro Hungarian empire is troubled. The old empire, may seek to reclaim a place in world affairs. Anschluss resentment from German imposition lingers on.
Money will be offered to ensure the EU remains intact, albeit bereft of the troublesome Brits. The coffers will be opened to Edinburgh and Belfast (via Dublin) to secure expansion. London must be punished.
Scotland will be pushed into a second separation referendum. What golden treasures and whisky whims will be offered to secure Scottish accession to Brussels? The case for a United Ireland has never been stronger. Dublin will receive the EU coin to seduce the reluctant participants in the North.
The UK is no longer the fifth largest economy in the world. We slipped a slot as sterling fell. It’s a close call with France. Stripped of Scotland and Northern Ireland the position will be confirmed.
How soon will it happen ....?
For the moment, there is no rush to hand in our notice. A new Prime Minister will be in place by October. Article 50 will be triggered by the new dream team. EU leaders will not wait. Conversations behind closed doors have already begun to the exclusion of UK. Lord Hill’s position is under threat as the EU Commissioner for Financial Services.
There will be no “going back”. No second referendum” No renegotiated deal before exit. The German Finance Minister has confirmed “Out is Out”. Jean-Claude Juncker, EU Commission President has said “The UK government should give effect to the referendum decision as soon as possible”.
The witches of Macbeth have stirred their odious pot. “When 'tis done, then 'twere well It were done quickly”.
So how bad will it be ...?
Sterling - there are no fundamentals behind the fall in Sterling, just technical hedging and positioning. The pound had been hovering around $1.50 as polls closed, then collapsed to $1.32 as the reality of Brexit dawned. When when bulls short, markets overshoot. It’s nothing to do with prospects for the UK. More to do with month end bonus and funding finance for the Flaming Ferraris in the city.
The fundamentals will remain for sterling over the medium term. There will be no structural shift in levels, accelerating domestic inflation and forcing an upward rate move. As markets settle, the stability will be restored. The overshoot will be eliminated. It will be business as usual.
Moody’s have cut the UK outlook to negative ...
More a statement on the prospects for the NHS under Boris Johnson, than it is a serious commentary on the UK economic outlook in the short term.
Market Movements- similarly there are no fundamentals behind markets moves for the moment. Foreign earnings and dividends are enhanced as sterling falls. So what’s the real problem in the short term. It will be take five years for a new trade deal to be secured with Europe. Status Quo Ante Referendum the guideline for now.
Interest rates, there is no reason for our assumed path of rates to differ following the Brexit vote. The Governor of the Bank of England has stated all will be done to ensure liquidity and stability in the market. Speaking as he did from some Ibsen Doll's House in the city. The Old Lady adds a surreal "Alice in Wonderland" touch.
House Prices - may moderate but over pricing was always likely to adjust at some stage especially in London and the South East. Deals on the table are subject to Brexit clauses, now to be consolidated.
Government Borrowing - the reduction targets are already under pressure, after just two months into the financial year. The Treasury will struggle to meet the OBR target this year. The monies saved from the EU payments will confront a huge shopping list. It is unlikely the NHS will be a huge beneficiary.
The Current Account Deficit at 7% of GDP in the final quarter of 2015 is already a huge problem. We expect the net trade impact to be neutral. But a fall in some foreign investment projects will damage the current account over the medium term.
Jobs and earnings - we expect no impact on the jobs market in the short term. Uncertainty has been eliminated. Earnings will rise, as labour supply tightens further assisted by some form of immigration control.
Household Spending - Buoyed by rising earnings and a strong jobs market, consumers will adjust to the UK place in world affairs. Consumer spending driven by a younger demographic will continue to expand.
Investment - Businesses will begin their scenario planning. Investment spending plans on hold will be implemented assuming full separation from the EU. Areas most at risk will be motor, with tough decisions to follow at Nissan and Toyota. The Mini may make the move to Munich as part of any post Brexit deal.
BA has warned profits would be hit by a decision to leave the EU. The travel sector may be damaged. Easy Jet may rebase out of the UK. Brits may travel less to Europe. More tourists may come from around the world if sterling does slump. The net trade impact would be beneficial to the UK. We have a huge tourism deficit.
Aerospace will lose the next round of the Airbus contracts. In London, banking and finance will lose the Euro trade to Paris and Frankfurt. International banks will downsize slightly as “Passporting” rules are denied to UK domiciles.
“Leaving the Eu will mostly eliminate manufacturing but this shouldn’t scare us” says Professor Patrick Minford. Well it sure scares me ...
“We are in uncharted waters without a compass” according to Paul Johnson of the IFS in the Times today. Uncharted waters with nothing but the stars to guide us. We are on our own now, or will be soon.
“So long and thanks for all the fish” the reaction from the EU.
So what happened to Markets?
Sterling fell against the Dollar at $1.375 from $1.432 and down slightly against the Euro at €1.230 from €1.269. The Euro was fell against the Dollar to 1.117 from 1.128.
Oil Price Brent Crude closed at $48.70 from $48.70. The average price in June last year was $61.48.
Markets, were down - The Dow closed up at 17,503 from 17,674. The FTSE closed at 6,138 from 6,021.
Gilts - yields moved down. UK Ten year gilt yields closed at 1.09 from 1.14. US Treasury yields moved to 1.57 from 1.61. Gold closed at $1,316 from $1,292.
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