What we don’t know
While today sees the end of an important chapter for the UK’s relationship with the EU, it is not the end of the story.
In the near term, the trade negotiations with the EU are an important factor to keep the momentum of the nascent post-election growth recovery.
The nature of the UK’s trading relationships – with the EU and the wider world – will be crucial. A degree of drag on what has previously been friction-free trade seems inevitable. A major factor will be alignment with EU standards and regulations, but these could also have an impact on the UK’s ability to strike deals with other markets. Ultimately, much depends on whether negotiators can keep the wheels of commerce as well-greased as possible.
In the longer term, improving productivity and the rising importance of fiscal policy will also be important factors. The upcoming budget on 11 March will give us a taste of the direction of policy in the latter area. What this means for the UK economy will also only become clear as negotiations continue. While the final impact will no doubt fall somewhere between the most dire and most optimistic estimates, it is likely to be unevenly distributed in terms of sectors and business types.
Looking to the future
There are early signs of a post-election recovery in UK growth. The consumer is in good health, while wage growth and house price trends look positive. Low rates and fiscal stimulus should be supportive of economic growth as well.
The Bank of England opted to leave rates unchanged at its meeting on Thursday, indicating that they are waiting for a clearer view on the direction of growth before making any changes. While the growth forecast for 2020 was reduced – to 0.8% from the previous forecast of 1.2% - any cut in rates depend on future economic strength and any fiscal measures mentioned in the March budget.
As we’ve frequently repeated throughout the Brexit charivari, the UK is only one factor we consider when we make investment decisions, and a relatively minor one at that. The global economy sets the dial on our investment strategies, in particular the lodestones of the US and – increasingly – China.
We’ll continue to monitor activity as the negotiations continue. Political disruptions can often throw-up short-term opportunities, as we have seen already, which we remain alive to. And the UK’s changing relationship with Europe will undoubtedly have an economic impact that we’ll need to assess.
Facing the future with an eye for opportunities – and risks – will remain at the heart of what we do to preserve and grow our clients’ wealth.