Monday, 27 June 2016

As predicted

There was an immediate plunge in the value of sterling and in the stock market indices after the EU referendum verdict, as was to be expected. The markets do not like uncertainty. Once they had taken stock of the situation, those key indicators settled down. The FTSE 100 is now around the same level as it was before the vote. However, it should be pointed out that the 100 comprises large companies, often foreign-owned, which are not dependent on the single market or are exporters which will benefit from a weaker pound. A better overview of the effect on the British economy is given by the 250 next listed companies:

I am not a financial expert, but it seems to me therefore that pension funds which tend to be invested in the top companies will not suffer much from Brexit. On the other hand, UK-based companies most of whose business is in the UK are going to be under pressure leading to increased unemployment. It could be another case of the retired being better off than the economically-active.

Sterling is at $1.32 as I write, a value last seen 31 years ago. There is no sign of it rising soon; indeed there are predictions that it will decline further. So there will be an immediate effect on the prices of petrol and food, with gas and other imports to follow.

Finally, it remains to be seen whether investors in UK government bonds share the rosy opinion of our prospects outside the EU as Norman Lamont and others. If they do not, then the interest on our debt will rise and the accumulation of debt will accelerate. This is why George Osborne envisioned an extra budget this year, and one which would impact benefits. The question is whether the current cabinet will contrive an early election before then, scuttling out before the next administration has to carry the can.

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