The Brexit fall out continues, Nigel Farage the latest political leader to walk away from what may be the hardest part of the vote, implementing the result. In the wake of the possible economic impact the Chancellor on Monday laid out his five-point plan to help support the economy, and on Tuesday the Bank of England announced it was reducing the capital buffer banks needed to free up the amount of capital available for lending. The release of the Banks financial stability report identified several areas the Brexit vote might impact the economy, the large current account deficit, risk to capital inflows from rest of the world, high level of household debt, subdued global economy possibly exasperated by the vote, and finally frailties in financial market functioning. Nothing new then to offer us, most of those concerns have been well flagged in daily newspapers.
Over the past couple of days, we have also had the Markit construction Purchasing Managers index reading for construction and services for June, both came in below expectations. The construction reading at 46 was well below consensus estimates, services at 53.3 marginally so. It may be too early to gauge the real impact of the vote, but it is fair to say that both index readings have been falling for most of the past year. Markit suggest that the latest figures would indicate economic growth of around 0.2% in the second quarter. Sterling took another knock against the dollar trading close to $1.31.
The trading patterns continue, the FTSE 100 remains more resilient than the 250 index, as the FTSE 100 companies earn a greater amount of their capital abroad, benefitting from the weaker currency. The FTSE 100 also has a greater exposure to bond proxy sectors, such as utilities. European markets continue to weaken. Bond markets continue to benefit from a flight to safety as does the Japanese yen.
Economic growth is built on confidence and recessions on a lack of confidence, and the worry is that Brexit will just give those looking for an excuse to do nothing, to do nothing. One has to wonder how much attention the great political brains of the world, when embarking on project fear in an attempt to persuade the “doubters” to become “inners”, realised what impact this might have on global optimism should the outers win.