24 June 2016

EU Referendum result: James Edgedale comments

The events of yesterday will have a profound effect on our short to medium term economics and politics. Markets have been fairly erratic in recent weeks for obvious reasons and are likely to remain unsettled for some time to come.


It will take a little while for the full implications of yesterday’s vote to work through the political system. The Pound has already given back earlier gains and stock markets around the world are under pressure and the same is true of bond markets in the UK. I expect these conditions to remain for a few weeks.  I think interest rates are unlikely to rise significantly, due to increased concerns over our economy, however, it must be remembered that a large proportion of the earnings of the top 100 companies in this country come from abroad and the lower level of the Pound should help.

Leaving Europe should have little effect on the profits of international conglomerates, such as Shell, Unilever and Reckitt Benckiser. If money is drawn out of the UK, this will more likely affect sectors such as property and housebuilders. On the other hand, the UK might evolve into a safe haven within Europe in due course, similar to Switzerland and Norw ay, so property prices could eventually recover quite strongly. If this does happen, then other sectors should begin to improve as well.

Before yesterday’s vote I felt that the UK in general did not fully understand the political and economic consequences of the choice laid before us. Very mixed messages emanated from politicians. As for the stock market, I am not so sure why things should fundamentally change, other than in terms of short term sentiment. I believe markets will settle down in due course.

The key unknown is how Europe will react and the extent to which Brexit impinges on the future of the single market. Does Europe punish the UK with trade and movement restrictions in an attempt to deter others from leaving the Union?  Cutting off noses to spite faces are words that spring to mind. Or do they pursue a more rational path and do their best to continue to facilitate the free movement of trade and goods?

We live in a global world and whether or not we are part of Europe, our companies do business globally and, rational self-interest permitting, there will still be a market for much of our goods and services in Europe. Brexit should not stop us buying German cars and I doubt that it will stop Europeans buying from the UK. So I am fairly sanguine about what has happened and anticipate a long wait before seeing how the long term consequences develop. I do not consider Brexit will profoundly affect the profitability of most companies and thus the ultimate prosperity of our markets.

James Edgedale

Chairman, JM Finn & Co