To say we were surprised by the Brexit outcome is an understatement.
A material change to the investment environment in which we are operating has come about and we are working
hard to embrace to these changes.
Following the result, Governor of the Bank of England (BoE) Mark Carney stressed the resilience of the UK’s financial system and maintained that there would be
“no initial change” in the way that Britons travel or trade, although he warned that some market and economic volatility should be expected.
That means we may see interest rates go down for mortgages and savers, which leads to the question of how do we make our money in savings and pensions grow?
There is still the Global picture to consider.
There are other places in the world including the UK where our managers will look to invest, in order to achieve better returns for us.
Whilst we are told that, over the longer term, the fundamentals are still in place, we also want to make sure the fund managers we work with, think about the shorter term picture in order to try and deliver returns
today without taking huge risks.
It is important to remember in the investment world there will be both winners and losers, so we will be checking on the performance of our managers to ensure they are winning, whilst ensuring they will be looking at
preserving the gains they make.
We expect the fund managers we use to be pragmatic,nimble and flexible. History has shown us that investments made at times of pessimism have the
greatest chance of success.
Looking ahead, as the UK starts the convoluted process of detaching itself from Europe; sentiment is likely to be adversely affected by concerns over the future. Amid
an extended period of political uncertainty, we believe financial markets will function in an orderly fashion as central banks stand behind them.
The measured response from the Bank of England so far looks set to continue, with many predicting an interest rate cut in July or August. We feel the government may
also need to consider further fiscal as well as monetary stimulus, with perhaps a reduction to VAT or a cut in stamp duty potentially benefiting a wider swathe of the population.
Ultimately, no one can predict what the coming months and years might hold but we should be under no illusion that this vote has damaged the UK’s international reputation and economic forecasts will
need, likely downward, revision. Markets will move on and get distracted by other Global events – we have five European elections in the next 18 months and the small matter of the Clinton/Trump battle in the US.
We have some new innovative investment solutions which may be of interest to you at present so please contact us if you want to know more.
Commentary from fund managers –
AXA INVESTMENT MANAGERS
David Page, Senior Economist at AXA Investment Managers
The UK economic outlook is likely to be severely affected by the vote to leave. Subdued investment and foreign direct investment are expected to weigh on economic expansion. We have downgraded our forecast for UK GDP growth in 2017 from 1.9% to 0.4%. Intensifying short-term inflationary pressures, coupled with rising uncertainty over employment, are expected to apply a fresh burden on households as real disposable income growth slows. We expect the Bank of England to implement two interest-rate cuts before the end of 2016 – each of 0.25 percentage points – and to instigate between £50bn and £100bn of quantitative easing.
Nick Mustoe, Chief Investment Officer
Mark Barnett, Head of UK Equities
Jeff Taylor, Head of European Equities
The “Leave” vote creates substantial short-term headwinds to the UK economy, including delays to consumer spending, recruitment, and foreign direct investment. The Brexit decision is likely to weaken sterling and curb growth; nevertheless, the economy remains well positioned to handle what lies ahead. Moreover, market volatility may create some attractive buying opportunities for long-term investors; in particular, large UK companies with a high proportion of overseas earnings could benefit from pronounced weakness in sterling. Although broader European economic growth may be negatively affected, Europe’s recovery has been driven by domestic demand, and is therefore well positioned to withstand external shocks.
Azad Zangana, Senior European Economist & Strategist
The UK’s decision to leave the EU has come as a major shock for investors and uncertainty is likely to remain high for some time. Companies may postpone or cancel investment and hiring plans, putting pressure on households. Sterling is likely to depreciate significantly and, although this could boost the competitiveness of UK exporters, uncertainty over trade arrangements may offset the otherwise positive impact on overseas demand. Moreover, weak sterling will boost import prices, stoking inflation and dampening demand. In the near term, the UK may experience a period of stagflation: stagnating economic growth accompanied by high inflation.