It’s a year to the day which Britain voted to exit the EU now come to be known as Brexit, perhaps it is worth reflecting on the year that has passed and look to the coming months. The day of the vote the FTSE 100 initially fell about 8%, trading at one point below 6000, today it stands just below 7500 a rise of 25% from the low. On the same day, the FTSE 250 fell over 10% to trade below 15,000 it currently stands just below 20,000, a pretty good recovery. The pound traded close to 1.5 against the US dollar ahead of the vote and currently trades closer to 1.27 today. The pound has lost roughly 15% of its value against the euro and the US dollar. The one thing that voters probably did not expect, either remainers’ or Brexiteers, was the political turmoil the vote would cause, possibly opening the door for the extremist policies of Jeremy Corbyn. David Cameron resigned almost immediately after the vote leaving a political vacuum. Theresa May, after a solid start, appears unable to meet the demands of the post. This time last year Jeremy was the dead man walking, today the shoe is on the other foot.
Mark Carney, in a fit of self-justification for his comments ahead of the vote, cut interest rates and announced another bout of quantitative easing almost immediately after the vote. Subsequently yields on ten year gilts have fallen from almost 1.5% to 1%. Yields on the 2 year have fallen less steeply leading to a flattening of the yield curve. The Banks Chief economist has now joined the list of policy makers who belief interest rates should go higher by the end of the year, directly contradicting Mark Carney’s expectations at his Mansion House speech. This at a time when the UK economy has looked its most vulnerable since the vote. The weaker currency has led to a rise in import costs and in turn inflation has crept close to 3%, leading to the UK economy has entering a period of stagflation.
Article 50 was triggered in March and now thankfully the negotiations have started, hopefully there will be more clarity on the direction of travel. The negotiations are bound to be tough. On the one hand the European Union will want to find some way of continuing to trade with Britain, and its citizens continue to work here. On the other they make it too easy and they from a template for other European nations. Theresa May’s negotiating position has been weakened by the election result, and there are now more remainers within Parliament. In theory, everything is supposed to be resolved within less than two years, somehow that feels unlikely.