European Hokey Cokey...
Welcome to my seventh bi-monthly commentary which I am writing to provide a perspective on what I am doing on a daily basis in my working life and drawing attention to anything which has happened to me since writing the last blog.
Since my last blog about "Brexit" this subject has dominated client conversations for all of us in the office with many conversation topics coming up time and time again. So, I am going to discuss the Brexit situation in a bit more detail, by going through a few of the most popular topics which clients are concerned with as we approach the 23rd June.
Interest Rates - If we leave the EU, this could knock GDP forecasts which are already pretty lukewarm for 2016 in any event. This would mean that the Banks could remain cautious leading to interest rates being held lower for longer.
House Prices - A reduction in net migration could affect landlords as immigrants are 3 times more likely to rent property than buy when they arrive in the UK according to recent statistics. A lack of prospective tenants, longer void periods and an overall reduction in demand for rental property could mean that prices decrease and the attractiveness of rental property as an investment medium could weaken. Many are forecasting a "correction" in values, especially in areas saturated by "buy to let" investors.
Oil Price - As I type this the price per barrel price of Oil is a six month high. Shale technology has meant that America is becoming "oil independent" and although Brexit would impact on many things, there seems unlikely to be a direct correlation between Brexit and Oil Price.
Business Confidence - Anti discrimination laws, paid parental leave and regulated break periods have all been introduced by EU directives. But we are finding that some firms are concerned by immigration restrictions. 32% of EU immigrants have a degree. This compares to 21% of UK citizens. Will this mean that lower qualified staff are available in the future or will it mean that the reduced number of prospective job hunters reduce, more job opportunities will be available? This is an extremely complex debate and there are lots to consider when it comes to the confidence of both employees and employers.
Inflation - A 2% government target has been in place for many years now, but today a figure of 0.3% has been revealed. Lowering air travel costs have been a major factor and the value of sterling may have an impact on inflation.
Offshore Workers - If you work overseas or in some cases offshore, you may not be paid in Sterling. The weakening of the Pound will impact on exchange rates and although the value of the Pound has changed some of these major changes have already been felt. The referendum result will have an impact upon currency values and this could have an effect if you are not paid in Sterling.
Are UK based businesses just waiting to see what's going to happen? - The talk of Brexit does give the impression that maybe the UK economy is "sitting on its hands" until after the result is known. Recent corporate results would tend to indicate the opposite and although the UK stockmarket doesn't always reflect the underlying economic data it is still very much business as usual.
Should I invest in the UK at all at the moment? - All investments should be diversified and that has always been my recommendation and to exclude a large economy such as the UK from your thinking would be a very bold move. The UK Stockmarket (FTSE All Share) is up 1.6% in the last six months and although the last month hasn't been quite so good, you shouldn't ignore the ninth largest economy in the world. Any investment should be across all asset classes, geographically spread and diversified and this strategy must remain, Brexit vote or not.
As we get closer to the voting date, more and more information is becoming available and the opinions of many are becoming subject to change. I still think that the main issue will be who can be bothered to vote. Many people will simply think that "we still stay in, so why bother" whilst the "out-ers" will all be keen to vote to make their voice heard, so this could have a big part to play in the final outcome.
Not long to go now.
Ian Howell DipFA MIFS