What would the impact of a ‘no-deal’ Brexit be on the UK economy? Especially if you’ve already got or are planning long term investments?
The reality is the UK economy has already been affected with businesses postponing investment whilst they wait for a deal or no deal outcome, and with a weaker sterling fuelling inflation, household domestic spend has drastically slowed.
The government have published white papers outlining what companies should do if the UK leaves without a deal, and the view (supported by the International Monetary Fund) is that the UK economy will take another hit with the pound potentially dropping further.
As Bank of England Governor Mark Carney warned back in September, worst case scenario could see Britain go into recession, the value of the pound drop and house prices fall.
So, how would this effect your investment portfolio? Well portfolios could actually benefit. If you cast your mind back to the initial outcome of the referendum, UK markets rallied in response to many FTSE 100 companies having a global presence and generating profits in foreign currencies, worth more than a weaker sterling.
If the outcome really is ‘no deal’, both global and domestic companies should benefit in a similar way.
It’s perfectly feasible the UK bond market will advance due to lower GDP growth, which would offset the risk of holding UK bonds. That’s why Rockstone portfolios are diversified across a range of international markets, well positioned to take advantage of UK bond market gains if they materialise.
We believe the final Brexit outcome is most likely to be soft, at least initially. A “no deal” Brexit will significantly impact the EU economy as well as the UK, so it really is in everyone’s interests to reach an agreement. Whatever’s agreed for Brexit a transition period will follow, during which time details will be refined, potentially resulting in a harder Brexit.
During negotiations, markets are likely to remain volatile, in response to headlines but as the outcome becomes clearer, markets are likely to recover. We have increased the balance of UK equities to take this into account.
Any investment portfolio could fall for a period of time, so portfolio diversification across international markets is the best approach, with a longer-term investment strategy balancing out any short-term market and particularly Brexit volatility.
Rockstone Mortgage & Financial Advice Ltd offers investment advice based on current market fluctuations. This article is a reflection of our view at the time of going to press and is subject to change.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.