The result of today’s decision was not as many had expected, but despite the UK vote to leave, it will continue to be part of the EU for up to another two years and business at many investment institutions will be broadly unaffected except for some minor operational alterations. The good news is that the market has not panicked. Over the very short term we might anticipate some minor impact on trading as some fund management groups may restrict redemption volumes to enable them to manage their liquidity risks. Over the longer term the UK will renegotiate trading agreements with European partnerships and fund houses will seek authorisation from EU jurisdictions if required to ensure that their services are unaffected. I will continue to trade and advise in accordance with your wishes and do my utmost to minimise the potential negative impact on your portfolio, yourselves and your families.
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In the wake of the referendum results, the factors influencing the votes and predictions for the implications of the votes is being considered across the board.
Everything from too many “remain” voters stuck in the mud at Glastonbury or on holiday after university exams to rain in the South East of England keeping young voters indoors. Even the potential of voter fatigue in Scotland. Regardless, what we do know, is that it was probably a combination of factors and quite possibly we now have a more representative sample of the UK population and a relatively strong majority voting to leave the EU – 52% vs 48%. As you are well aware, the UK has voted to leave the European Union and the British Prime Minister, David Cameron has resigned; up until the evening of the 23rd June bookmakers odds suggested there was only a 16% chance of this happening. However, despite the financial markets and global institutions having to make revisions to their predictions, the majority will still try to position themselves to continue to profit from this outcome as in many market conditions. That being said, a number of funds will face uncertainty as volatility spikes. Although this will even out and come to pass in time, this is by no means of short-term impact. The next step involves the invocation of article 50 of the Lisbon Treaty which opens up a two-year negotiation, after which the treaties which govern the UK’s membership of the EU no longer exist. Interestingly, and adding further uncertainty, the terms of any negotiated exit agreement are subject to ratification by each member country’s parliament. Following the financial crisis, there was a lot of talk from policymakers about rebalancing the UK economy. Unfortunately, this has not materialised and the UK economy remains unbalanced and the nature of recent economic growth is unsustainable.
UK households are saving less now than any other time since the mid-1960s. Currently, the average household saves less than 4% of its income per year. Although we are a consumer economy, it stands to reason that a higher savings rate would be a positive step towards a more balanced economy, one that would be capable of delivering long-term prosperity (not least because theoretically savings should equate to investment). Upon emergence from the financial crisis, it was widely acknowledged that the UK savings rate was too low and despite considerable talk about the desire for a higher rate in order to reduce the UK’s vulnerability to shocks in the future, this clearly has not happened. |
Lennox C. R. PittArchives
November 2016
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